UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2018

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from             to             

Commission File Number: 001-38503

 

Iterum Therapeutics plc

(Exact Name of Registrant as Specified in its Charter)

 

 

Ireland

98-1283148

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

Block 2 Floor 3, Harcourt Centre,

Harcourt Street,

Dublin 2, Ireland

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code: (+353) 1 903-8920

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes      No  

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

  

Accelerated filer

 

 

 

 

 

Non-accelerated filer

 

  (Do not check if a smaller reporting company)

  

Smaller reporting company

 

 

 

 

 

 

 

 

Emerging growth company

 

 

 

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  

As of July 31, 2018, the registrant had 14,159,423 ordinary shares, $0.01 par value per share, outstanding.

 

 


Table of Contents

 

 

 

Page

PART I.

FINANCIAL INFORMATION

2

Item 1.

Financial Statements (Unaudited)

2

 

Condensed Consolidated Balance Sheets

2

 

Condensed Consolidated Statements of Operations and Comprehensive Loss

3

 

Condensed Consolidated Statements of Cash Flows

4

 

Notes to Unaudited Condensed Consolidated Financial Statements

5

Item 2.

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

15

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

23

Item 4.

Controls and Procedures

23

PART II.

OTHER INFORMATION

24

Item 1.

Legal Proceedings

24

Item 1A.

Risk Factors

24

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

57

Item 6.

Exhibits

58

Signatures

59

 

 

 

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 on Form 10-Q are forward-looking statements. In some cases, you can identify forward-looking statements by words such as “anticipate,” “believe,” “contemplate,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “seek,” “should,” “target,” “will,” “would,” or the negative of these words or other comparable terminology. These forward-looking statements include, but are not limited to, statements about:

 

our use of our cash reserves;

 

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

 

our ability to retain the continued service of our key professionals and to identify, hire and retain additional qualified professionals;

 

our ability to advance product candidates into, and successfully complete, clinical trials;

 

the timing or likelihood of regulatory filings and approvals;

 

the commercialization of our product candidates, if approved;

 

our ability to draw down our second term loan with Silicon Valley Bank;

 

our manufacturing plans;

 

market acceptance of any product we successfully commercialize;

 

the pricing, coverage and reimbursement of our product candidates, if approved;

 

the implementation of our business model, strategic plans for our business and product candidates;

 

the scope of protection we are able to establish and maintain for intellectual property rights covering our product candidates;

 

our ability to enter into strategic arrangements and/or collaborations and the potential benefits of such arrangements;

 

our estimates regarding expenses, capital requirements and needs for additional financing;

 

our financial performance; and

 

developments relating to our competitors and our industry.

These forward-looking statements are subject to a number of risks, uncertainties and assumptions, including those described in “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q. 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 on Form 10-Q 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 on Form 10-Q to conform these statements to new information, actual results or to changes in our expectations, except as required by law.

1


 

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

ITERUM THERAPEUTICS PLC

Condensed Consolidated Balance Sheets

(In thousands except share and per share data)

(Unaudited)

 

 

 

June 30,

 

 

December 31,

 

 

 

2018

 

 

2017

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

84,901

 

 

$

8,485

 

Short-term investments

 

 

50,370

 

 

 

30,731

 

Prepaid expenses and other current assets

 

 

6,442

 

 

 

4,957

 

Total current assets

 

 

141,713

 

 

 

44,173

 

Property and equipment, net

 

 

735

 

 

 

747

 

Restricted cash

 

 

120

 

 

 

 

Other assets

 

 

2,902

 

 

 

1,837

 

Total assets

 

$

145,470

 

 

$

46,757

 

Liabilities, Convertible Preferred Shares and Shareholders’ Equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

8,169

 

 

$

3,152

 

Accrued expenses

 

 

4,121

 

 

 

3,974

 

Total current liabilities

 

 

12,290

 

 

 

7,126

 

Long-term debt

 

 

14,505

 

 

 

 

Other liabilities

 

 

145

 

 

 

80

 

Total liabilities

 

$

26,940

 

 

$

7,206

 

Commitments and contingencies (Note 11)

 

 

 

 

 

 

 

 

Series A convertible preferred shares, $0.01 par value per share: 3,032,463

   shares authorized, no shares issued at June 30, 2018; 3,032,457 shares issued

   at December 31, 2017

 

 

 

 

 

30

 

Series B convertible preferred shares, $0.01 par value per share: 4,801,493

   shares authorized, no shares issued at June 30, 2018; 3,696,943

   shares authorized, 2,654,206 shares issued at December 31, 2017;

 

 

 

 

 

27

 

Shareholders’ equity:

 

 

 

 

 

 

 

 

Ordinary shares, $0.01 par value per share: 44,557,606 shares authorized, 14,159,423

   shares issued at June 30,2018; 7,956,715 shares authorized 413,110 shares issued

   at December 31, 2017

 

 

142

 

 

 

4

 

Additional paid-in capital

 

 

201,018

 

 

 

94,227

 

Accumulated deficit

 

 

(82,630

)

 

 

(54,737

)

Total shareholders' equity

 

 

118,530

 

 

 

39,494

 

Total liabilities, convertible preferred shares and shareholders’ equity

 

$

145,470

 

 

$

46,757

 

 

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

 

2


 

ITERUM THERAPEUTICS PLC

Condensed Consolidated Statements of Operations and Comprehensive Loss

(In thousands, except share and per share data)

(Unaudited)

 

 

 

Three months ended

 

 

Six months ended

 

 

 

June 30,

 

 

June 30,

 

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

Revenue

 

$

185

 

 

$

 

 

$

376

 

 

$

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

$

(13,725

)

 

$

(5,290

)

 

$

(24,604

)

 

$

(9,824

)

General and administrative

 

 

(1,886

)

 

 

(1,123

)

 

 

(3,401

)

 

 

(2,131

)

Total operating expenses

 

 

(15,611

)

 

 

(6,413

)

 

 

(28,005

)

 

 

(11,955

)

Operating loss

 

 

(15,426

)

 

 

(6,413

)

 

 

(27,629

)

 

 

(11,955

)

Interest (expense) / income, net

 

$

(76

)

 

 

46

 

 

 

9

 

 

 

46

 

Other (expense) / income, net

 

 

(177

)

 

 

165

 

 

 

(116

)

 

 

97

 

Total other (expense) / income

 

 

(253

)

 

 

211

 

 

 

(107

)

 

 

143

 

Loss before income taxes

 

 

(15,679

)

 

 

(6,202

)

 

 

(27,736

)

 

 

(11,812

)

Income tax expense

 

 

(68

)

 

 

(78

)

 

 

(157

)

 

 

(305

)

Net loss and comprehensive loss

 

 

(15,747

)

 

 

(6,280

)

 

 

(27,893

)

 

 

(12,117

)

Net loss attributable to ordinary shareholders

 

$

(15,747

)

 

$

(6,280

)

 

$

(27,893

)

 

$

(12,117

)

Net loss per share attributable to ordinary shareholders – basic

   and diluted

 

$

(2.22

)

 

$

(39.44

)

 

$

(6.72

)

 

$

(82.82

)

Weighted average ordinary shares outstanding – basic

   and diluted

 

 

7,085,655

 

 

 

159,221

 

 

 

4,148,535

 

 

 

146,311

 

 

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

 

3


 

ITERUM THERAPEUTICS PLC

Condensed Consolidated Statements of Cash flows

(In thousands, except share and per share data)

(Unaudited)

 

 

 

Six months ended June 30,

 

 

 

2018

 

 

2017

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(27,893

)

 

$

(12,117

)

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

 

 

 

 

 

 

 

 

Depreciation

 

 

64

 

 

 

14

 

Share-based compensation expense

 

 

404

 

 

 

180

 

Non-cash (loss) / gain on short term investments

 

 

(62

)

 

 

20

 

Interest on short-term investments

 

 

(71

)

 

 

(97

)

Amortization of debt discount and deferred financing costs

 

 

138

 

 

 

-

 

Other

 

 

245

 

 

 

-

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Prepaid expenses and other current assets

 

 

(1,563

)

 

 

(3,165

)

Other assets

 

 

(1,065

)

 

 

(584

)

Accounts payable

 

 

5,014

 

 

 

624

 

Accrued expenses

 

 

94

 

 

 

(242

)

Income taxes

 

 

60

 

 

 

239

 

Other liabilities

 

 

65

 

 

 

84

 

Net cash used in operating activities

 

 

(24,570

)

 

 

(15,044

)

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Purchases of property and equipment

 

 

(53

)

 

 

(612

)

Purchases of short-term investments

 

 

(53,727

)

 

 

(33,785

)

Proceeds from sale of short-term investments

 

 

34,150

 

 

 

 

Net cash used in investing activities

 

 

(19,630

)

 

 

(34,397

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Proceeds from issuance of debt, net of debt issuance costs

 

 

14,507

 

 

 

 

Proceeds from issuance of Series B convertible preferred shares

 

 

32,173

 

 

 

45,867

 

Proceeds from issuance of ordinary shares, net of issuance costs

 

 

74,155

 

 

 

 

Net cash provided by financing activities

 

 

120,835

 

 

 

45,867

 

Effect of exchange rates on cash and cash equivalents

 

 

(99

)

 

 

-

 

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

 

 

76,536

 

 

 

(3,574

)

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

 

 

8,485

 

 

 

24,809

 

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

 

$

85,021

 

 

$

21,235

 

 

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

 

 

 

4


 

ITERUM THERAPEUTICS PLC

Notes to Condensed Consolidated Financial Statements

(In thousands, except share and per share data)

(Unaudited)

 

1. Basis of Presentation

Iterum Therapeutics plc (the “Company”) was incorporated under the laws of the state of Ireland in June 2015 as a limited company and reregistered as a public limited company on March 20, 2018. The Company maintains its registered office at Block 2 Floor 3, Harcourt Centre, Harcourt Street, Dublin 2, Ireland. The Company commenced operations in November 2015. The Company licensed global rights to its novel anti-infective compound, sulopenem, from Pfizer Inc. (“Pfizer”). The Company is a clinical-stage pharmaceutical company dedicated to developing and commercializing sulopenem to be 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”) and a sub-award from the Trustees of Boston University under the Combating Antibiotic Resistant Bacteria Biopharmaceutical Accelerator (“CARB-X”) program. The Company has not generated any product revenue. The Company is subject to risks and uncertainties common to early-stage companies in the pharmaceutical industry, including, but not limited to, failure to successfully develop and commercialize its product candidates, development by competitors of new technological innovations, dependence on key personnel, protection of proprietary technology, compliance with government regulations and the ability to secure additional capital to fund operations. Product candidates currently under development will require significant additional research and development efforts, including preclinical and clinical testing and regulatory approval prior to commercialization.

Even if the Company’s product development efforts are successful, it is uncertain when, if ever, the Company will realize significant revenue from product sales.

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

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

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

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 the quarterly condensed consolidated financial statements.

The Company has incurred operating losses since inception, including net losses of $27,893 and $12,117 for the six month periods ended June 30, 2018 and June 30, 2017, respectively, and a net loss of $29,406 for the year ended December 31, 2017. The Company had an accumulated deficit of $82,630 as of June 30, 2018. The Company expects to continue to incur net losses for the next several years and is highly dependent on its ability to find additional sources of funding in the form of debt or equity financing to fund its operations. Management believe that its cash and cash equivalents balance of $84,901 and short-term investments balance of $50,370 at June 30, 2018, are sufficient to fund operations through the fourth quarter of 2019. In making this assessment management have considered the Company’s available cash resources, the $15.0 million available under the secured credit facility with SVB, future financing options available to the Company, the planned operations of the Company and the ability to adjust its plans if required. The Company will then seek additional funding through public or private financing of debt or equity or collaboration agreements. There

5


ITERUM THERAPEUTICS PLC

Notes to Condensed Consolidated Financial Statements

(In thousands, except share and per share data)

(Unaudited)

 

can be no assurances, however, that the current operating plan will be achieved or that additional funding will be available on terms acceptable to the Company, or at all.

Interim Financial Information

The condensed consolidated balance sheet at December 31, 2017 was derived from audited financial statements, but does not include all disclosures required by GAAP. The accompanying unaudited condensed consolidated financial statements as of June 30, 2018, and for six months ended June 30, 2018 and 2017, 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, 2017, included in the Company’s final prospectus for its initial public offering filed pursuant to Rule 424(b)(4) under the Securities Act of 1933, as amended (the “Securities Act”) with the SEC on May 25, 2018. In the opinion of management, all adjustments, consisting only of normal recurring adjustments necessary for a fair statement of the Company’s financial position as of June 30, 2018, and results of operations for the six months ended June 30, 2018 and 2017, and cash flows for the six months ended June 30, 2018 and 2017 have been made. The results of operations for the six months ended June 30, 2018 are not necessarily indicative of the results of operations that may be expected for the year ending December 31, 2018.

2. Summary of Significant Accounting Policies

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period. Significant estimates and assumptions reflected in these condensed consolidated financial statements include, but are not limited to, the accrual for research and development expenses, revenue from grant awards, the valuation of restricted ordinary shares and the valuation of share-based compensation awards. The Company bases its estimates on historical experience, known trends and other market-specific or other relevant factors that it believes to be reasonable under the circumstances. On an ongoing basis, management evaluates its estimates as there are changes in circumstances, facts and experience. Actual results could differ materially from those estimates.

Net Loss Per Ordinary Share

Basic and diluted net loss per ordinary share is determined by dividing net loss attributable to ordinary shareholders by the weighted-average ordinary shares outstanding during the period; in accordance with Accounting Standard Codification (ASC) 260, Earnings per Share. For the periods presented, the ordinary shares underlying the convertible preferred shares and options, and unvested restricted ordinary shares have been excluded from the calculation because they would be anti-dilutive.

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

 

 

 

Six months ended

 

 

 

June 30, 2018

 

 

June 30, 2017

 

Options to purchase ordinary shares

 

 

696,112

 

 

 

66,832

 

Preferred shares convertible into ordinary shares

 

 

 

 

 

5,686,667

 

Unvested restricted ordinary shares

 

 

143,076

 

 

 

246,282

 

Unvested restricted stock units

 

 

36,924

 

 

 

 

Warrants

 

 

19,890

 

 

 

 

Total

 

 

896,002

 

 

 

5,999,781

 

 

Segment Information

The Company determines and presents operating segments based on the information that is internally provided to the Chief Executive Officer, Chief Scientific Officer, Chief Financial Officer and Chief Commercial 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 Condensed Consolidated Financial Statements

(In thousands, except share and per share data)

(Unaudited)

 

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

 

 

 

Three months ended June 30,

 

 

Six months ended June 30,

 

Operating expenses

 

2018

 

 

2017

 

 

2018

 

 

2017

 

Ireland

 

$

12,811

 

 

$

5,205

 

 

$

22,775

 

 

$

9,674

 

U.S.

 

 

2,800

 

 

 

1,208

 

 

 

5,230

 

 

 

2,281

 

Total

 

$

15,611

 

 

$

6,413

 

 

$

28,005

 

 

$

11,955

 

 

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

 

Long lived assets

 

June 30, 2018

 

 

December 31, 2017

 

Ireland

 

$

3,388

 

 

$

2,341

 

U.S.

 

 

369

 

 

 

243

 

Total

 

$

3,757

 

 

$

2,584

 

 

Recent Accounting Pronouncements

In July 2017, the Financial Accounting Standards Board (FASB) issued ASU 2017-11, Earnings Per Share (Topic 260), Distinguishing Liabilities from Equity (Topic 480), Derivatives and Hedging (Topic 815), I. Accounting for Certain Financial Instruments with Down Round Features, II. Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception.

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

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). ASU 2016-02 was issued to increase transparency and comparability among entities by recognizing lease assets and lease liabilities on the consolidated balance sheet and disclosing key information about lease arrangements. ASU 2016-02 is effective for public companies for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. The Company is currently evaluating the impact of adopting ASU 2016-02 on the consolidated financial statements.

3. Fair Value of Financial Assets

The following table presents information about the Company’s financial assets that have been measured at fair value at December 31, 2017 and June 30, 2018 and indicates the fair value hierarchy of the valuation inputs utilized to determine such fair value.

 

June 30, 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Assets

 

Total

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

Short-term investments

 

$

50,370

 

 

$

50,370

 

 

 

 

 

 

 

Other asset – advance payment to supplier

 

 

1,728

 

 

 

 

 

 

 

 

 

1,728

 

Total

 

$

52,098

 

 

 

50,370

 

 

 

 

 

 

1,728

 

December 31, 2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Assets

 

Total

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

Short-term investments

 

$

30,731

 

 

 

30,731

 

 

 

 

 

 

 

Other asset – advance payment to supplier

 

 

1,472

 

 

 

 

 

 

 

 

 

1,472

 

Total

 

$

32,203

 

 

 

30,731

 

 

 

 

 

 

1,472

 

 

See Note 4 for further details on the short-term investments held. The other asset above relates to advance payments made to a supplier that were recorded at fair value using the discounted cash flow model (DCF), as of December 31, 2017 and June 30, 2018. Key assumptions used in the DCF include a discount rate of 15% and the expected time to recovery of the payment. See Note 11—Payments to Supplier, for further details on these advance payments.

 

7


ITERUM THERAPEUTICS PLC

Notes to Condensed Consolidated Financial Statements

(In thousands, except share and per share data)

(Unaudited)

 

As of June 30, 2018, the estimated fair value of our borrowings under our term loan with SVB was approximately equal to its book value based on the borrowing rates currently available for variable rate loans (Level 2).

 

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-ends consist of U.S. Treasury and agency bonds and corporate entity commercial paper with maturities of more than three months but less than one year at the date of purchase. Short-term investments as of June 30, 2018 have an average maturity of 0.41 years. The investments are reported at fair value with unrealized gains or losses recorded in the consolidated statements of operations and comprehensive loss. Any differences between the cost and fair value of investments are represented by unrealized gains or losses. The fair value of short-term investments are represented by Level 1 fair value measurements – quoted prices in active markets for identical assets.

The following table represents the Company’s available for sale short-term investments by major security type as of June 30, 2018 and December 31, 2017:

 

June 30, 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Maturity by period

 

 

 

 

 

 

 

Unrealized

 

 

Unrealized

 

 

Fair Value

 

 

Less than 1

 

 

 

 

 

Available for sale

 

Cost Total

 

 

gains

 

 

(losses)

 

 

Total

 

 

year

 

 

1 to 5 years

 

Commercial paper

 

$

47,831

 

 

 

58

 

 

 

(3

)

 

 

47,886

 

 

 

47,886

 

 

 

 

U.S. Treasury and Agency Bonds

 

 

2,477

 

 

 

7

 

 

 

 

 

 

2,484

 

 

 

2,484

 

 

 

 

Total

 

$

50,308

 

 

 

65

 

 

 

(3

)

 

 

50,370

 

 

 

50,370

 

 

 

 

 

December 31, 2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Maturity by period

 

 

 

 

 

 

 

Unrealized

 

 

Unrealized

 

 

Fair Value

 

 

Less than 1

 

 

 

 

 

Available for sale

 

Cost Total

 

 

gains

 

 

(losses)

 

 

Total

 

 

year

 

 

1 to 5 years

 

Commercial paper

 

$

22,538

 

 

 

8

 

 

 

(27

)

 

 

22,519

 

 

 

22,519

 

 

 

 

U.S. Treasury and Agency Bonds

 

 

8,205

 

 

 

18

 

 

 

(11

)

 

 

8,212

 

 

 

8,212

 

 

 

 

Total

 

$

30,743

 

 

 

26

 

 

 

(38

)

 

 

30,731

 

 

 

30,731

 

 

 

 

 

5. Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets consist of the following:

 

 

 

June 30,

2018

 

 

December 31,

2017

 

Prepaid research and development expenses

 

$

3,165

 

 

$

2,289

 

Short-term deposits

 

 

1,195

 

 

 

1,346

 

Other prepaid assets

 

 

595

 

 

 

516

 

Value added tax receivable

 

 

592

 

 

 

281

 

Deferred IPO expenses

 

 

-

 

 

 

180

 

Research and development tax credit receivable

 

 

130

 

 

 

133

 

Prepaid insurance

 

 

598

 

 

 

117

 

Interest receivable

 

 

167

 

 

 

95

 

Total

 

$

6,442

 

 

$

4,957

 

 

8


ITERUM THERAPEUTICS PLC

Notes to Condensed Consolidated Financial Statements

(In thousands, except share and per share data)

(Unaudited)

 

6. Property and Equipment

Property and equipment and related accumulated depreciation are as follows:

 

 

 

June 30,

2018

 

 

December 31,

2017

 

Leasehold improvements

 

$

592

 

 

$

579

 

Furniture and fixtures

 

 

118

 

 

 

108

 

Laboratory equipment

 

 

81

 

 

 

81

 

Computer equipment

 

 

73

 

 

 

44

 

 

 

 

864

 

 

 

812

 

Less: accumulated depreciation

 

 

(129

)

 

 

(65

)

 

 

$

735

 

 

$

747

 

 

Depreciation expense was $64 for the six month period ended June 30, 2018 and $65 for the year ended December 31, 2017.

7. Accrued Expenses

Accrued expenses consist of the following:

 

 

 

June 30,

2018

 

 

December 31,

2017

 

Accrued clinical trial costs

 

$

2,025

 

 

$

594

 

Accrued manufacturing expenses

 

 

851

 

 

 

2,031

 

Accrued payroll and bonus expenses

 

 

920

 

 

 

1,059

 

Accrued other expenses

 

 

325

 

 

 

290

 

Total

 

$

4,121

 

 

$

3,974

 

 

8. Shareholders’ Equity

The following tables present a reconciliation of our beginning and ending balances in shareholders’ equity for the six months ended June 30, 2018 and 2017:

 

 

 

Total

Shareholders'

Equity

 

Shareholders' equity at January 1, 2018

 

$

39,494

 

Issuance of Series B convertible preferred shares

 

 

32,159

 

Issuance of ordinary shares

 

 

74,153

 

Conversion of preferred shares to ordinary shares

 

 

74

 

Share-based compensation expense

 

 

404

 

Issuance of warrants

 

 

139

 

Net loss

 

 

(27,893

)

Shareholders' equity at June 30, 2018

 

$

118,530

 

 

 

 

Total

Shareholders'

Equity

 

Shareholders' equity at January 1, 2017

 

$

22,668

 

Issuance of Series B convertible preferred shares

 

 

45,840

 

Share-based compensation expense

 

 

180

 

Net loss

 

 

(12,117

)

Shareholders' equity at June 30, 2017

 

$

56,571

 

 

9


ITERUM THERAPEUTICS PLC

Notes to Condensed Consolidated Financial Statements

(In thousands, except share and per share data)

(Unaudited)

 

9. Share-Based Compensation

The Company’s Board of Directors adopted and approved the 2015 Equity Incentive Plan in November 2015 (“the 2015 Plan”). The 2015 Plan was amended most recently in May 2017. The 2015 Plan provides for the grant of incentive stock options, nonstatutory stock options, restricted stock awards, restricted stock units, stock appreciation rights, and other stock awards to our employees, directors and consultants. On March 14, 2018, the Company’s Board of Directors adopted and approved the 2018 Equity Incentive Plan (the “2018 Plan”), which became effective on the execution and delivery of the underwriting agreement related to the IPO. The 2018 Plan authorizes the Company to grant up to 1,018,459 ordinary shares in the form of incentive stock options, nonstatutory stock options, stock appreciation rights, restricted stock awards, restricted stock units, performance stock awards, performance cash awards and other stock awards. The types of share-based awards, including share purchase rights amount, terms, and exercisability provisions of grants are determined by the Company’s Board of Directors. Since the effectiveness of the 2018 Plan, the Company no longer grants awards under the 2015 Plan. However, any outstanding awards granted under the 2015 Plan will remain outstanding, subject to the terms of the 2015 Plan and stock option agreements, until such outstanding options are exercised or until they terminate or expire by their terms.

Restricted Ordinary Shares

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

The Company recorded an expense of $165 and $165 for the restricted ordinary shares for the six month periods ended June 30, 2018 and June 30, 2017, respectively. Total unamortized compensation expense related to restricted ordinary shares was $428 and $761 as of June 30, 2018 and June 30, 2017, respectively, expected to be recognized over a weighted average period of 1.38 years and 2.38 years as of June 30, 2018 and June 30, 2017, respectively.

The following table summarizes restricted ordinary shares activity for the six months ended June 30, 2018:

 

 

 

Number of

 

 

Weighted

Average

grant date fair

 

 

 

Shares

 

 

value per share

 

Unvested at December 31, 2017

 

 

189,342

 

 

$

3.14

 

Granted

 

 

 

 

 

 

 

Vested

 

 

(46,266

)

 

$

3.14

 

Forfeited

 

 

 

 

 

 

 

Unvested at June 30, 2018 (unaudited)

 

 

143,076

 

 

$

3.14

 

Stock Options

 

The Company awarded 447,984 stock options to employees and directors for the six month period ended June 30, 2018 under the 2018 Plan. The Company awarded 17,502 stock options to employees and directors during the six month period ended June 30, 2017 under the 2015 Plan. There were 663,916 and 56,596 unvested employee options outstanding as of June 30, 2018 and June 30, 2017, respectively. Total expense recognized related to the employee stock options was $189 and $15 for the six month periods ended June 30, 2018 and June 30, 2017, respectively. Total unamortized compensation expense related to employee stock options was $3,549 and $95 as of June 30, 2018 and June 30, 2017, respectively, which is expected to be recognized over a remaining average vesting period of 3.71 years and 3.28 years as of June 30, 2018 and June 30, 2017, respectively.

10


ITERUM THERAPEUTICS PLC

Notes to Condensed Consolidated Financial Statements

(In thousands, except share and per share data)

(Unaudited)

 

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

 

 

 

Six months ended June 30,

 

 

 

2018

 

 

2017

 

Volatility

 

 

60

%

 

 

60

%

Expected term in years

 

 

6.25

 

 

 

6.25

 

Dividend rate

 

 

0

%

 

 

0

%

Risk-free interest rate

 

 

2.16

%

 

 

1.63

%

Share price

 

$12.20 - $13.00

 

 

$

3.30

 

Fair value of option on grant date

 

$7.03 - $7.49

 

 

$

1.88

 

 

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

 

 

 

Number of

Shares

 

 

Weighted

Average Exercise

Price

 

 

Weighted

Average

Remaining

Contractual Life

in Years

 

 

Aggregate

Intrinsic

Value

(in thousands)

 

Options outstanding December 31, 2017

 

 

248,128

 

 

$

3.31

 

 

 

9.44

 

 

 

 

 

Granted

 

 

447,984

 

 

 

12.99

 

 

 

9.92

 

 

 

 

 

Exercised

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Forfeited

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Options outstanding June 30, 2018

 

 

696,112

 

 

$

9.54

 

 

 

9.57

 

 

 

1,825

 

Vested at June 30, 2018 (unaudited)

 

 

32,196

 

 

 

 

 

 

 

 

 

 

 

 

 

Exercisable at June 30, 2018 (unaudited)

 

 

32,196

 

 

$

3.17

 

 

 

8.15

 

 

 

766

 

 

Restricted stock units (RSUs)

The Company granted 36,924 RSUs to directors for the six month period ended June 30, 2018. No RSUs were awarded for the six month period ended June 30, 2017.

The table below shows the number of RSUs granted covering an equal number of our ordinary shares and the weighted-average grant date fair value of the RSUs granted:

 

 

 

Number of

Shares

 

 

Weighted average

grant date fair

value per share

 

RSUs outstanding December 31, 2017

 

 

 

 

 

 

 

Granted

 

 

36,924

 

 

$

13.00

 

Shares vested

 

 

 

 

 

 

 

Forfeited

 

 

 

 

 

 

 

RSUs outstanding June 30, 2018

 

 

36,924

 

 

$

13.00

 

 

The fair value of the RSUs is determined on the date of grant based on the market price of our ordinary shares on that date. The fair value of RSUs is expensed ratably over the vesting period, which is generally one year for directors. Total expense recognized related to the RSUs was $50 for the period ended June 30, 2018. Total unamortized compensation expense related to RSUs was $431 as of June 30, 2018, which is expected to be recognized over a remaining average vesting period of 0.9 years as of June 30, 2018.

The Company’s share-based compensation expense was classified in the consolidated statements of operations and comprehensive loss as follows:

11


ITERUM THERAPEUTICS PLC

Notes to Condensed Consolidated Financial Statements

(In thousands, except share and per share data)

(Unaudited)

 

 

 

 

Three months ended June 30,

 

 

Six months ended June 30,

 

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

 

 

(unaudited)

 

 

(unaudited)

 

Research and development expense

 

$

118

 

 

$

42

 

 

$

197

 

 

$

85

 

General and administrative expense

 

 

149

 

 

 

48

 

 

 

207

 

 

 

95

 

 

There was a total of $4,408 and $856 unamortized share-based compensation expense for restricted ordinary shares, options and restricted stock units as of June 30, 2018 and June 30, 2017, respectively, which is expected to be recognized over a remaining average vesting period of 3.21 years and 2.48 years as of June 30, 2018 and June 30, 2017, respectively.

10. Income Taxes 

In accordance with the FASB ASC Topic No. 270 “Interim Reporting” and ASC Topic No. 740 “Income Taxes” (Topic No. 740) at the end of each interim period, the Company is required to determine the best estimate of its annual effective tax rate and then apply that rate in providing for income taxes on a current year-to-date (interim period) basis. For the three months ended June 30, 2018 and 2017, the Company recorded an income tax expense of $68 and $78 respectively. For the six months ended June 30, 2018 and 2017, the Company recorded an income tax expense of $157 and $305 respectively.

Deferred tax assets and deferred tax liabilities are recognized based on temporary differences between the financial reporting and tax bases of assets and liabilities using statutory rates. Management of the Company has evaluated the positive and negative evidence bearing upon the realizability of its deferred tax assets, including the Company’s history of losses and determined that it is more-likely-than-not that these net deferred tax assets will not be realized. As of June 30, 2018, and December 31, 2017, the company has net operating loss carryforwards in Ireland of approximately $8,886 and $5,409 respectively, for which a full valuation allowance has been recognized. The net operating loss carryforwards do not expire, but are carried forward indefinitely. Realization of these deferred tax assets is dependent on the generation of sufficient taxable income. If the Company demonstrates consistent profitability in the future, the evaluation of the recoverability of these deferred tax assets may change and the remaining valuation allowance may be released in part or in whole. While management expects to realize the deferred tax assets, net of valuation allowances, changes in estimates of future taxable income or in tax laws may alter this expectation.    

11. Commitments and Contingencies

Operating Leases

In June 2018, the Company entered into an operating lease agreement for a commercial unit in Dublin for a period of 20 years with a 10 year break option, that commenced in June 2018. Annual lease payments are $321, subject to certain escalations at each five year interval. Under the terms of the lease, the Company provided a security deposit of $818 to the landlord, which is included in other assets in the accompanying balance sheet.

In March 2018, the Company entered into an operating lease agreement for office space in Chicago for a period of five years that commenced in June 2018. Annual lease payments are $258, subject to certain escalations, with a renewal option to extend the lease for an additional five years. Under the terms of the lease, the Company provided a security deposit in the form of a letter of credit for the benefit of the landlord in the amount of $120 which amount will be reduced incrementally over the term of the lease. The letter of credit outstanding is collateralized with a certificate of deposit.

In April 2017, the Company entered into an operating lease agreement for office space in Connecticut for a period of five years that commenced in July 2017. Annual lease payments are $131, subject to certain escalations, with a renewal option to extend the lease for an additional three years. Under the terms of the lease, the Company provided a security deposit of $17 to the landlord, which is included in other assets in the accompanying consolidated balance sheets.

In December 2016, the Company entered into an operating lease agreement for office space in Dublin that commenced on December 1, 2016 and expires on December 1, 2026. The lease requires annual payments of $375 over the ten-year term with a renewal option to extend the lease for an additional five years. Under the terms of the lease, the Company provided a security deposit of $338 to the landlord, which is included in other assets in the accompanying consolidated balance sheets. The lease is subject to a review in December 2022.

The following table summarizes the future minimum payments due under the operating leases as of June 30, 2018:

12


ITERUM THERAPEUTICS PLC

Notes to Condensed Consolidated Financial Statements

(In thousands, except share and per share data)

(Unaudited)

 

 

Year Ending December 31, (unaudited)

 

 

 

 

2018 (remaining)

 

$

402

 

2019

 

 

962

 

2020

 

 

1,078

 

2021

 

 

1,088

 

2022

 

 

1,030

 

Thereafter

 

 

3,255

 

 

 

$

7,815

 

 

License Agreement

On November 18, 2015, the Company entered into a license agreement with Pfizer for the worldwide exclusive rights to research, develop, manufacture and commercialize sulopenem.

As part of the license agreement, the Company is obligated to pay Pfizer potential future regulatory milestone payments, as well as sales milestones upon achievement of net sales ranging from $250.0 million to $1.0 billion for each product type. The Company is also obligated to pay Pfizer royalties ranging from a single-digit to mid-teens percentage based on marginal net sales of each licensed product.

Payments to Supplier

In June 2016, the Company entered into an agreement with a supplier whereby the Company would pay $2,923 to the supplier to acquire equipment which will be used solely to manufacture product for the Company. In June 2018, the Company entered into a supplemental agreement with this supplier whereby the Company would pay an additional $2,397 under the same terms as the original agreement. These payments will be offset against the price of the product to be supplied under a future supply agreement. $2,397 and $599 remained outstanding to the supplier as of June 30, 2018 and December 31, 2017, respectively.

Contingencies

Liabilities for loss contingencies arising from claims, assessments, litigation, fines, penalties and other sources are recorded when it is probable that a liability has been incurred and the amount can be reasonably estimated. At each reporting date the Company evaluates whether or not a potential loss amount or a potential loss range is probable and reasonably estimable under the provisions of the authoritative guidelines that address accounting for contingencies. The Company expenses costs as incurred in relation to such legal proceedings. The Company is not currently involved in any legal matters arising in the normal course of business.

Under the terms of their respective employment agreements, each of the named executive officers is eligible to receive severance payments and benefits upon a termination without “cause” or due to “permanent disability”, or upon “resignation for good reason”, contingent upon the named executive officer’s delivery to the Company.

12. Debt

On April 27, 2018, the Company’s subsidiaries, Iterum Therapeutics International Limited, Iterum Therapeutics US Holding Limited and Iterum Therapeutics US Limited, entered into a Loan and Security Agreement with SVB and made an initial draw of $15,000 on closing. A second draw of up to $15,000 will be available to the Company through October 31, 2019, upon satisfaction of either (i) the achievement by the Company of both non-inferiority and superiority primary endpoints from its Phase 3 uncomplicated urinary tract infection (uUTI) trial, as well as reporting satisfactory safety data from the trial, or (ii) the achievement of non-inferiority primary endpoints from both its Phase 3 uUTI and complicated urinary tract infection (cUTI) trials, as well as reporting satisfactory safety data from the trials.

The initial draw requires monthly amortization payments commencing on November 1, 2019; however this will extend to April 1, 2020 if the second draw is funded. Interest will accrue at a floating per annum rate equal to the greater of (i) 8.31%; or (ii) 3.89% above the Wall Street Journal prime rate, and is payable monthly in arrears. All outstanding principal, plus a 4.2% final interest payment, will be due and payable on March 1, 2022. Voluntary prepayments will be permitted at any time, subject to a prepayment fee of 3% in the first year, 2% in the second year, and 1% thereafter.

In connection with the initial $15,000 draw, the Company issued to SVB and Life Sciences Fund II LLC (LSF) warrants to purchase an aggregate of 19,890 Series B convertible preferred shares (which converted to ordinary shares upon the Company’s IPO) at an exercise price of $18.85 per share. On the funding date of the second term loan, each of SVB and LSF will be automatically

13


ITERUM THERAPEUTICS PLC

Notes to Condensed Consolidated Financial Statements

(In thousands, except share and per share data)

(Unaudited)

 

entitled to purchase additional ordinary shares in an aggregate amount equal to 2.5% of the second term loan divided by the applicable exercise price.

The loan proceeds were allocated based on the relative fair values of the debt instrument and the warrant instrument. The fair value of the warrants and the closing costs were recorded as debt discounts and are being amortized using the effective interest rate method over the term of the loan. Amortization of the debt discount was $138 for the six months ended June 30, 2018.

Scheduled principal payments on outstanding debt, as of June 30, 2018, are as follows:

 

Year Ending December 31, (unaudited)

 

 

 

 

2018 (remaining)

 

 

 

2019

 

 

1,552

 

2020

 

 

6,207

 

2021

 

 

6,207

 

2022

 

 

1,034

 

 

 

$

15,000

 

 

13. Subsequent Events  

The Company initiated its Phase 3 uUTI clinical trial, known as SUlopenem for Resistant Enterobacteriaceae (SURE) 1, in August 2018. Upon dosing of the first patient in this trial the Company will record a liability of $7,500 payable to Pfizer under the terms of its license agreement with Pfizer.

 

 

 

 

14


 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

You should read the following discussion and analysis of our financial condition and results of operations together with the unaudited financial information and the notes thereto included appearing elsewhere in this Quarterly Report on Form 10-Q, and our final prospectus for our initial public offering filed pursuant to Rule 424(b)(4) under the Securities Act of 1933, as amended (the Securities Act), with the Securities and Exchange Commission (SEC), on May 25, 2018. Some of the information contained in this discussion and analysis or set forth elsewhere in this Quarterly Report on Form 10-Q, including information with respect to our plans and strategy for our business and related financing, includes “forward-looking statements” within the meaning of Section 27A of the Securities Act and Section 21E of the Securities Exchange Act of 1934, as amended (the Exchange Act). These statements are often identified by the use of words such as “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “project,” “will,” “would” or the negative or plural of these words or similar expressions or variations. Such forward-looking statements are subject to a number of risks, uncertainties, assumptions and other factors that could cause actual results and the timing of certain events to differ materially from future results expressed or implied by the forward-looking statements, including the initiation, timing, progress and results of our preclinical studies and clinical trials, and our research and development programs; our ability to advance product candidates into, and successfully complete, clinical trials; the timing or likelihood of regulatory filings and approvals; the commercialization of our product candidates, if approved; our manufacturing plans; our estimates regarding expenses, capital requirements and needs for additional financing; our financial performance; and developments relating to our competitors and our industry. Factors that could cause or contribute to such differences include, but are not limited to, those identified in this Quarterly Report on Form 10-Q and those discussed in the section titled “Risk Factors” set forth in Part II, Item 1A of this Quarterly Report on Form 10-Q and in our other SEC filings. In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based on information available to us as of the date of this Quarterly Report on Form 10-Q. And while we believe that information provides a reasonable basis for these statements, that information may be limited or incomplete. Our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all relevant information. These statements are inherently uncertain, and investors are cautioned not to unduly rely on these statements. You should not rely upon forward-looking statements as predictions of future events. Furthermore, such forward-looking statements speak only as of the date of this report. Except as required by law, we undertake no obligation to update any forward-looking statements to reflect events or circumstances after the date of such statements.

Overview

We are a pharmaceutical company, incorporated in Ireland, dedicated to developing and commercializing sulopenem to be potentially the first and only oral and intravenous (IV) branded penem available globally. Penems, including thiopenems and carbapenems, belong to a class of antibiotics more broadly defined as ß-lactam antibiotics, the original example of which was penicillin, but which now also includes cephalosporins. Sulopenem is a potent, thiopenem antibiotic delivered intravenously which is active against bacteria that belong to the group of organisms known as gram-negatives and cause urinary tract and intra-abdominal infections. We have successfully developed sulopenem in an oral tablet formulation, sulopenem etzadroxil-probenecid, which we refer to herein as oral sulopenem. Both sulopenem products have the potential to be important new treatment alternatives to address growing concerns related to antibacterial resistance without the known toxicities of some of the most widely used antibiotics, specifically fluoroquinolones. We see two distinct opportunities for our sulopenem program: patients at elevated risk for treatment failure in the community setting suffering from uncomplicated urinary tract infections (uUTI) and hospitalized patients suffering from complicated, resistant infections.

We initiated a Phase 3 uUTI clinical trial, known as SUlopenem for Resistant Enterobacteriaceae (SURE) 1, comparing oral sulopenem to oral ciprofloxacin in women with uUTI in August 2018. We plan to initiate two additional Phase 3 clinical trials in the second half of 2018 for the treatment of adults in two further indications: complicated urinary tract infections (cUTI) and complicated intra-abdominal infections (cIAI). We designed one Phase 3 clinical trial in each indication based on our end of Phase 2 meeting with the U.S. Food and Drug Administration (FDA) and feedback from the European Medicines Agency (EMA). We are conducting the Phase 3 clinical trials under Special Protocol Assessment (SPA) agreements from the FDA. We expect to complete enrollment and produce topline data for all three clinical trials in the second half of 2019, and submit our new drug applications (NDAs) to the FDA by the end of 2019.

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

Since our inception, we have incurred significant operating losses. Our ability to generate product revenue sufficient to achieve profitability will depend heavily on the successful development and eventual commercialization of oral sulopenem and sulopenem. As of June 30, 2018, we had an accumulated deficit of $82.6 million. We expect to continue to incur significant expenses for at least the next two years as we advance our sulopenem program through Phase 3 clinical trials, seek regulatory approval and engage in market preparation activities. In addition, if we obtain marketing approval for oral sulopenem and sulopenem, we expect to incur significant commercialization expenses related to product manufacturing, marketing, sales and distribution. Furthermore, we may incur expenses in connection with the establishment of additional sources for the manufacture of sulopenem tablets and IV vials or the in-license or acquisition of additional product candidates. Additionally, we have incurred and expect to incur additional costs associated with operating as a public company, including significant legal, accounting, investor relations and other expenses that we did not incur as a private company.

As a result, we will require additional capital to fund our operations, continue to develop our sulopenem program and to execute our strategy. Until such time as we can obtain marketing approval for oral sulopenem, sulopenem or any future product candidate and generate significant revenue from product sales, if ever, we expect to finance our operations through a combination of equity offerings, debt financings, collaboration agreements, other third-party funding, strategic alliances, licensing arrangements, marketing and distribution arrangements or government funding. We may be unable to raise additional funds or enter into such other agreements or arrangements when needed on favorable

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terms, or at all. If we fail to raise capital or enter into such agreements as, and when, needed, we may have to significantly delay, scale back, discontinue the development and commercialization of our sulopenem program, or otherwise change our strategy.

Because of the numerous risks and uncertainties associated with product development, we are unable to predict the timing or amount of increased expenses or when or if we will be able to achieve or maintain profitability. Even if we are able to generate product sales, we may not become profitable. If we fail to become profitable or are unable to sustain profitability on a continuing basis, then we may be unable to continue our operations at planned levels and be forced to reduce or terminate our operations.

As of June 30, 2018, we had cash, cash equivalents, restricted cash and short-term investments of $135.4 million. We believe that our existing cash, cash equivalents, restricted cash short-term investments and available borrowings under our credit facility, will enable us to fund our operating expenses and capital expenditure requirements through the fourth quarter of 2019. We have based these estimates on assumptions that may prove to be wrong, and we could exhaust our available capital resources sooner than we expect. See the section titled “—Liquidity and Capital Resources.”

Recent Developments

Phase Three Clinical Trial – We initiated our SURE 1 trial in August 2018. The SURE 1 uUTI Phase 3 trial is a randomized, multi-center, double-blind study to measure efficacy, tolerability, and safety of oral sulopenem vs. oral ciprofloxacin for the treatment of uUTI in adult women. Patients will be randomized to receive either oral sulopenem twice daily for 5 days or oral ciprofloxacin twice daily for 3 days, the approved regimen in uUTI. The trial is expected to enroll approximately 1,364 patients and will be conducted under an SPA agreement from the FDA. Iterum expects to announce topline results from this trial in the second half of 2019.

Components of Our Results of Operations

Revenue

To date, we have not generated any revenue from product sales and do not expect to generate any revenue from the sale of oral sulopenem or sulopenem in the near future. If our development efforts for our sulopenem program are successful and result in regulatory approval and/or license agreements with third parties, we may generate revenue in the future from product sales. To date, all of our revenue has been derived from our Combating Antibiotic Resistant Bacteria Biopharmaceutical Accelerator, or CARB-X, award. We expect that our revenue for the next few years will be derived primarily from payments under the CARB-X Award or government awards that we may enter into in the future. In June 2017, CARB-X awarded us funds of up to $1.5 million to advance the development of our sulopenem program. We receive funding from CARB-X as we incur qualifying expenses. During the three and six months ended June 30, 2018, we recognized revenue of $0.2 million and $0.4 million, respectively, under this award.

Operating Expenses

Research and Development Expenses

Research and development expenses consist primarily of costs incurred in connection with the development of our sulopenem program, which include:

 

expenses incurred under agreements with contract research organizations (CROs), contract manufacturing organizations (CMOs), as well as investigative sites and consultants that conduct our clinical trials, preclinical studies and other scientific development services;

 

manufacturing scale-up expenses and the cost of acquiring and manufacturing preclinical and clinical trial materials and commercial materials, including manufacturing validation batches;

 

employee-related expenses, including salaries, related benefits, travel and share-based compensation expense for employees engaged in research and development functions;

 

costs related to compliance with regulatory requirements;

 

facilities costs, depreciation and other expenses, which include rent and utilities; and

 

payments made in cash, equity securities or other forms of consideration under third-party licensing agreements.

We expense research and development costs as incurred. Advance payments we make for goods or services to be received in the future for use in research and development activities are recorded as prepaid expenses. We recognize external development costs based on an evaluation of the progress to completion of specific tasks using information provided to us by our service providers.

Research and development activities are central to our business model. Product candidates in advanced stages of clinical development generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later stage clinical trials. As a result, we expect that our research and development expenses will increase substantially over the next two years as we increase personnel costs, including share-based compensation, continue the Phase 3 uUTI clinical trial for our sulopenem program, commence the cUTI and cIAI clinical trials for our sulopenem program, conduct other clinical trials and prepare regulatory filings for oral sulopenem and sulopenem. Upon first patient dosing in our SURE 1 clinical trial, which initiated in August 2018, a milestone payment of $7.5 million will become payable to Pfizer, with whom we have entered into an exclusive license agreement (the “Pfizer License”) to acquire the rights to oral sulopenem and sulopenem. We also expect to incur additional expenses related to milestone and royalty payments payable to Pfizer, including a further $7.5 million milestone payment upon first dosing of IV sulopenem in one of the clinical trials in cUTI or cIAI.

The successful development and commercialization of oral sulopenem and sulopenem is highly uncertain. At this time, we cannot reasonably estimate or know the nature, timing and costs of the efforts that will be necessary to complete the clinical development of our sulopenem

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program or when, if ever, material net cash inflows may commence from any of our product candidates. This uncertainty is due to the numerous risks and uncertainties associated with product development and commercialization, including the uncertainty of:

 

the scope, progress, outcome and costs of our clinical trials and other research and development activities;

 

successful patient enrollment in, and the initiation and completion of, clinical trials;

 

the timing, receipt and terms of any marketing approvals from applicable regulatory authorities;