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 March 31, 2019

OR

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

For the transition period from             to             

Commission File Number: 001-38503

 

Iterum Therapeutics plc

(Exact Name of Registrant as Specified in its Charter)

 

 

Ireland

98-1283148

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

Block 2 Floor 3, Harcourt Centre,

Harcourt Street,

Dublin 2, Ireland

(Address of principal executive offices)




Not applicable

(Zip Code)

 

(+353) 1 903-8920

(Registrant’s telephone number, including area code)

 

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

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

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

 

Large accelerated filer

 

  

Accelerated filer

 

 

 

 

 

Non-accelerated filer

 

  

  

Smaller reporting company

 

 

 

 

 

 

 

 

 

 

 

 

Emerging growth company

 

 

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

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

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

 

Trading Symbol(s)

 

Name of each exchange on which registered

Ordinary Shares, $0.01 par value per share

 

ITRM

 

The Nasdaq Stock Market LLC

As of April 30, 2019, the registrant had 14,369,218 ordinary shares, $0.01 par value per share, outstanding.

 

i

 


 

Table of Contents

 

 

 

Page

PART I.

FINANCIAL INFORMATION

1

Item 1.

Financial Statements (Unaudited)

1

 

Condensed Consolidated Balance Sheets

1

 

Condensed Consolidated Statements of Operations and Comprehensive Loss

2

 

Condensed Consolidated Statements of Cash Flows

3

 

Notes to Unaudited Condensed Consolidated Financial Statements

4

Item 2.

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

17

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

26

Item 4.

Controls and Procedures

26

PART II.

OTHER INFORMATION

27

Item 1.

Legal Proceedings

27

Item 1A.

Risk Factors

27

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

72

Item 6.

Exhibits

73

 

Signatures

74

 

 

 

ii

 


 

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

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

 

our use of cash reserves;

 

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

 

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

 

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

 

the potential advantages of our product candidates;

 

the timing or likelihood of regulatory filings and approvals;

 

the commercialization of our product candidates, if approved;

 

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

 

our manufacturing plans;

 

our sales, marketing and distribution capabilities and strategy;

 

market acceptance of any product we successfully commercialize;

 

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

 

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

 

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

 

our ability to enter into strategic arrangements, collaborations and/or commercial partnerships in the United States and other territories and the potential benefits of such arrangements;

 

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

 

our expectations regarding how far into the future our cash on hand will fund our ongoing operations;

 

our financial performance; and

 

developments relating to our competitors and our industry.

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

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

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

iii

 


 

 

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.

iv

 


 

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

ITERUM THERAPEUTICS PLC

Condensed Consolidated Balance Sheets

(In thousands except share and per share data)

(Unaudited)

 

 

 

March 31,

 

 

December 31,

 

 

 

2019

 

 

2018

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

64,603

 

 

$

44,551

 

Short-term investments

 

 

4,997

 

 

 

40,000

 

Prepaid expenses and other current assets

 

 

7,188

 

 

 

8,390

 

Current portion of restricted cash

 

 

30

 

 

 

30

 

Total current assets

 

 

76,818

 

 

 

92,971

 

Property and equipment, net

 

 

675

 

 

 

700

 

Restricted cash, less current portion

 

 

90

 

 

 

90

 

Other assets

 

 

11,551

 

 

 

4,110

 

Total assets

 

$

89,134

 

 

$

97,871

 

Liabilities and Shareholders’ Equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

6,176

 

 

$

4,041

 

Accrued expenses

 

 

8,696

 

 

 

7,046

 

Current portion of long-term debt

 

 

2,056

 

 

 

1,019

 

Income taxes payable

 

 

248

 

 

 

113

 

Other current liabilities

 

 

442

 

 

 

 

Total current liabilities

 

 

17,618

 

 

 

12,219

 

Long-term debt, less current portion

 

 

12,139

 

 

 

13,079

 

Other liabilities

 

 

7,747

 

 

 

951

 

Total liabilities

 

$

37,504

 

 

$

26,249

 

Commitments and contingencies (Note 12)

 

 

 

 

 

 

 

 

Shareholders’ equity:

 

 

 

 

 

 

 

 

Ordinary shares, $0.01 par value per share: 50,000,000 shares authorized at March 31, 2019 and December 31, 2018; 14,367,441 shares issued at March 31, 2019; 14,352,046 shares issued at December 31, 2018

 

 

144

 

 

 

144

 

Additional paid-in capital

 

 

203,859

 

 

 

203,271

 

Accumulated deficit

 

 

(152,373

)

 

 

(131,793

)

Total shareholders' equity

 

 

51,630

 

 

 

71,622

 

Total liabilities and shareholders’ equity

 

$

89,134

 

 

$

97,871

 

 

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

 

 

1


 

ITERUM THERAPEUTICS PLC

Condensed Consolidated Statements of Operations and Comprehensive Loss

(In thousands, except share and per share data)

(Unaudited)

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2019

 

 

2018

 

Revenue

 

$

37

 

 

$

191

 

Operating expenses:

 

 

 

 

 

 

 

 

Research and development

 

$

(17,387

)

 

$

(10,879

)

General and administrative

 

 

(3,116

)

 

 

(1,515

)

Total operating expenses

 

 

(20,503

)

 

 

(12,394

)

Operating loss

 

 

(20,466

)

 

 

(12,203

)

Interest (expense) / income, net

 

 

(104

)

 

 

85

 

Other income, net

 

 

124

 

 

 

61

 

Total other income

 

 

20

 

 

 

146

 

Loss before income taxes

 

 

(20,446

)

 

 

(12,057

)

Income tax expense

 

 

(134

)

 

 

(89

)

Net loss and comprehensive loss

 

 

(20,580

)

 

 

(12,146

)

Net loss attributable to ordinary shareholders

 

$

(20,580

)

 

$

(12,146

)

Net loss per share attributable to ordinary shareholders – basic

and diluted

 

$

(1.44

)

 

$

(61.36

)

Weighted average ordinary shares outstanding – basic

and diluted

 

 

14,290,437

 

 

 

197,949

 

 

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)

 

 

 

Three Months Ended March 31,

 

 

 

2019

 

 

2018

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(20,580

)

 

$

(12,146

)

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

 

 

 

 

 

 

 

 

Depreciation

 

 

35

 

 

 

31

 

Share-based compensation expense

 

 

540

 

 

 

149

 

Gain on short term investments

 

 

(88

)

 

 

 

Non-cash gain on short term investments

 

 

(9

)

 

 

(23

)

Interest on short-term investments

 

 

(11

)

 

 

 

Amortization of SVB loan

 

 

98

 

 

 

 

Other

 

 

29

 

 

 

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Prepaid expenses and other current assets

 

 

1,193

 

 

 

(793

)

Other assets

 

 

(191

)

 

 

(52

)

Accounts payable

 

 

2,135

 

 

 

422

 

Accrued expenses

 

 

1,662

 

 

 

692

 

Income taxes

 

 

134

 

 

 

82

 

Other liabilities

 

 

 

 

 

(2

)

Net cash used in operating activities

 

 

(15,053

)

 

 

(11,640

)

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Purchases of property and equipment

 

 

(10

)

 

 

(21

)

Purchases of short-term investments

 

 

 

 

 

(6,372

)

Proceeds from sale of short-term investments

 

 

35,100

 

 

 

15,750

 

Net cash generated by investing activities

 

 

35,090

 

 

 

9,357

 

Cash flows from financing activities:

 

 

 

 

 

 

 

 

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

 

 

 

 

 

32,176

 

Proceeds from exercise of shares options

 

 

49

 

 

 

 

Net cash provided by financing activities

 

 

49

 

 

 

32,176

 

Effect of exchange rates on cash and cash equivalents

 

 

(34

)

 

 

 

Net increase in cash, cash equivalents and restricted cash

 

 

20,052

 

 

 

29,893

 

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

 

 

44,671

 

 

 

8,485

 

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

 

$

64,723

 

 

$

38,378

 

Supplemental Disclosure of Cash Flow Information:

 

 

 

 

 

 

 

 

Income tax paid—U.S.

 

$

 

 

$

 

Interest paid

 

$

350

 

 

$

 

 

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

 

 

 

3

 


 

ITERUM THERAPEUTICS PLC

Notes to Condensed Consolidated Financial Statements

(In thousands, except share and per share data)

(Unaudited)

 

1. Basis of Presentation

Iterum Therapeutics plc (the “Company”) was incorporated under the laws of the state of Ireland in June 2015 as a limited company and re-registered as a public limited company on March 20, 2018. The Company maintains its registered office at Block 2 Floor 3, Harcourt Centre, Harcourt Street, Dublin 2, Ireland. The Company commenced operations in November 2015. The Company licensed global rights to its novel anti-infective compound, sulopenem, from Pfizer Inc. (Pfizer). The Company is a clinical-stage pharmaceutical company dedicated to developing and commercializing sulopenem to be potentially 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, the ability to secure additional capital to fund operations, failure to successfully develop and commercialize its product candidates, development by competitors of new technological innovations, dependence on key personnel, protection of proprietary technology and compliance with government regulations. Product candidates currently under development will require significant additional research and development efforts, including preclinical and clinical testing and regulatory approval prior to commercialization.

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

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

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

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

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 $20,580 and $12,146 for the three months ended March 31, 2019 and 2018, respectively, and a net loss of $77,056 for the year ended December 31, 2018. The Company had an accumulated deficit of $152,373 as of March 31, 2019. The Company expects to continue to incur net losses for the foreseeable future 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 $64,603 and short-term investments balance of $4,997 at March 31, 2019, together with the $15.0 million potentially available under the secured credit facility with SVB, are sufficient to fund operations for at least one year from the date the condensed consolidated financial statements are issued. In making this assessment management have considered the Company’s available cash resources, future financing options available to the Company, the planned operations of the Company and the ability to adjust its plans if required. The $15.0 million under the secured credit facility with SVB

 

4


ITERUM THERAPEUTICS PLC

Notes to Condensed Consolidated Financial Statements

(In thousands, except share and per share data)

(Unaudited)

 

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 inability to obtain funding, as and when needed, would have a negative impact on the Company’s financial condition and ability to pursue its business strategies. If the Company is unable to obtain funding, the Company could be forced to delay, reduce or eliminate some or all of its research and development programs or commercialization efforts, which could adversely affect its business prospects.

The Company expects to seek additional funding in order to continue to fund its operations through public or private financing of debt or equity or collaboration agreements. Although management intends to pursue plans to obtain additional funding to finance its operations, there is no assurance that the Company will be successful in obtaining sufficient funding on terms acceptable to the Company to fund continuing operations, if at all.

The accompanying condensed consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. Accordingly, the condensed consolidated financial statements have been prepared on a basis that assumes the Company will continue as a going concern and which contemplates the realization of assets and satisfaction of liabilities and commitments in the ordinary course of business.

Interim Financial Information

The condensed consolidated balance sheet at December 31, 2018 was derived from audited financial statements, but does not include all disclosures required by GAAP. The accompanying unaudited condensed consolidated financial statements as of March 31, 2019, have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (SEC) for interim financial statements. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. These condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and the notes thereto for the year ended December 31, 2018, included in the Company’s Annual Report on Form 10-K filed with the SEC on March 25, 2019. In the opinion of management, all adjustments, consisting only of normal recurring adjustments necessary for a fair statement of the Company’s financial position as of March 31, 2019, and results of operations for the three months ended March 31, 2019 and 2018, and cash flows for the three months ended March 31, 2019 and 2018 have been made. The results of operations for the three months ended March 31, 2019 are not necessarily indicative of the results of operations that may be expected for the year ending December 31, 2019.

 

2. Summary of Significant Accounting Policies

There have been no material changes in the Company’s significant accounting policies, other than the adoption of accounting pronouncements below, as compared to the significant accounting policies described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period. Significant estimates and assumptions reflected in these condensed consolidated financial statements include, but are not limited to, the accrual for research and development expenses, 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.

 


5

 


ITERUM THERAPEUTICS PLC

Notes to Condensed Consolidated Financial Statements

(In thousands, except share and per share data)

(Unaudited)

 

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, the unvested restricted ordinary shares, restricted share units, performance restricted share units and the warrants 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:

 

 

Three Months Ended

 

 

 

March 31, 2019

 

 

March 31, 2018

 

Options to purchase ordinary shares

 

 

1,091,238

 

 

 

248,128

 

Preferred shares convertible into ordinary shares

 

 

 

 

 

7,396,313

 

Unvested restricted ordinary shares

 

 

60,250

 

 

 

163,523

 

Unvested restricted share units

 

 

36,924

 

 

 

 

Unvested performance restricted share units

 

 

50,000

 

 

 

 

Warrants

 

 

19,890

 

 

 

 

Total

 

 

1,258,302

 

 

 

7,807,964

 

 

 

Segment Information

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

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

 

 

Three Months Ended

 

Operating expenses

 

March 31, 2019

 

 

March 31, 2018

 

Ireland

 

$

17,436

 

 

$

9,964

 

U.S.

 

 

3,067

 

 

$

2,430

 

Total

 

$

20,503

 

 

$

12,394

 

 

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

 

Long lived assets

 

March 31, 2019

 

 

December 31, 2018

 

Ireland

 

$

9,970

 

 

$

4,565

 

U.S.

 

 

2,256

 

 

 

245

 

Total

 

$

12,226

 

 

$

4,810

 

 

Recently Adopted Accounting Pronouncements

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

ASU 2016-02 requires a lessee to recognize a liability to make lease payments (the lease liability) and a right-of-use asset, representing its right to use the underlying asset for the lease term, on the balance sheet. The Company adopted ASU 2016-02 in the

6

 


ITERUM THERAPEUTICS PLC

Notes to Condensed Consolidated Financial Statements

(In thousands, except share and per share data)

(Unaudited)

 

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

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

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

 

3. Fair Value of Financial Assets and Liabilities

The following table presents information about the Company’s financial assets that were carried at fair value on a recurring basis on the condensed consolidated balance sheet as of March 31, 2019 and December 31, 2018 and indicates the fair value hierarchy of the valuation inputs utilized to determine such fair value.

 

March 31, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Assets

 

Total

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

Short-term investments

 

$

4,997

 

 

$

4,997

 

 

 

 

 

 

 

Other asset – advance payment to supplier

 

 

2,617

 

 

 

 

 

 

 

 

 

2,617

 

Total

 

$

7,614

 

 

 

4,997

 

 

 

 

 

 

2,617

 

December 31, 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Assets

 

Total

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

Short-term investments

 

$

40,000

 

 

 

40,000

 

 

 

 

 

 

 

Other asset – advance payment to supplier

 

 

2,649

 

 

 

 

 

 

 

 

 

2,649

 

Total

 

$

42,649

 

 

 

40,000

 

 

 

 

 

 

2,649

 

 

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

 

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

 

7

 


ITERUM THERAPEUTICS PLC

Notes to Condensed Consolidated Financial Statements

(In thousands, except share and per share data)

(Unaudited)

 

March 31, 2019

 

 

 

 

 

Approximate

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities

 

Book Value

 

 

Fair Value

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

Current portion of long-term debt

 

$

2,056

 

 

$

2,056

 

 

 

 

 

 

2,056

 

 

 

 

Long-term debt, less current portion

 

 

12,139

 

 

 

11,850

 

 

 

 

 

 

11,850

 

 

 

 

Total

 

$

14,195

 

 

$

13,906

 

 

 

 

 

 

13,906

 

 

 

 

December 31, 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities

 

Book Value

 

 

Approximate

Fair Value

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

Current portion of long-term debt

 

$

1,019

 

 

$

1,019

 

 

 

 

 

 

1,019

 

 

 

 

Long-term debt, less current portion

 

 

13,079

 

 

 

13,035

 

 

 

 

 

 

13,035

 

 

 

 

Total

 

$

14,098

 

 

$

14,054

 

 

 

 

 

 

14,054

 

 

 

 

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

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

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

 

4. Short-term investments

The Company classifies its short-term investments as available for sale. Short-term investments comprise highly liquid investments with minimum “A-” rated securities and as at period-end consist of corporate entity commercial paper with maturities of more than three months but less than one year at the date of purchase. Short-term investments as of March 31, 2019 have an average maturity of 0.12 years. The investments are reported at fair value with unrealized gains or losses recorded in the condensed consolidated statements of operations and comprehensive loss. Any differences between the cost and fair value of investments are represented by unrealized gains or losses. The fair value of short-term investments are represented by Level 1 fair value measurements – quoted prices in active markets for identical assets.

The following table represents the Company’s available for sale short-term investments by major security type as of March 31, 2019 and December 31, 2018:

 

March 31, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

$

4,986

 

 

 

11

 

 

 

 

 

 

4,997

 

 

 

4,997

 

 

 

 

 

December 31, 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Maturity by period

 

 

 

 

 

 

 

Unrealized

 

 

Unrealized

 

 

Fair Value

 

 

Less than 1

 

 

 

 

 

Available for sale

 

Cost Total

 

 

gains

 

 

(losses)

 

 

Total

 

 

year

 

 

1 to 5 years

 

Commercial paper

 

$

35,745

 

 

 

272

 

 

 

(9

)

 

 

36,008

 

 

 

36,008

 

 

 

 

U.S. Treasury and Agency Bonds

 

 

3,977

 

 

 

15

 

 

 

 

 

 

3,992

 

 

 

3,992

 

 

 

 

Total

 

$

39,722

 

 

 

287

 

 

 

(9

)

 

 

40,000

 

 

 

40,000

 

 

 

 

 

8

 


ITERUM THERAPEUTICS PLC

Notes to Condensed Consolidated Financial Statements

(In thousands, except share and per share data)

(Unaudited)

 

5. Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets consist of the following:

 

 

 

March 31,

2019

 

 

December 31,

2018

 

Prepaid research and development expenses

 

$

5,315

 

 

$

5,351

 

Short-term deposits

 

 

873

 

 

 

959

 

Research and development tax credit receivable

 

 

395

 

 

 

404

 

Prepaid insurance

 

 

245

 

 

 

438

 

Interest receivable

 

 

151

 

 

 

158

 

Other prepaid assets

 

 

141

 

 

 

921

 

Value added tax receivable

 

 

68

 

 

 

159

 

Total

 

$

7,188

 

 

$

8,390

 

 

 

6. Property and Equipment

Property and equipment and related accumulated depreciation are as follows:

 

 

 

March 31,

2019

 

 

December 31,

2018

 

Leasehold improvements

 

$

592

 

 

$

592

 

Furniture and fixtures

 

 

120

 

 

 

120

 

Laboratory equipment

 

 

81

 

 

 

81

 

Computer equipment

 

 

118

 

 

 

108

 

 

 

 

911

 

 

 

901

 

Less: accumulated depreciation

 

 

(236

)

 

 

(201

)

 

 

$

675

 

 

$

700

 

 

Depreciation expense was $35 for the three months ended March 31, 2019 and $136 for the year ended December 31, 2018.

7. Leases

The Company has entered into a number of operating leases, primarily for office space and commercial property. These leases have terms which range from six to 19 years, and generally include one or more options to terminate or renew. The termination options can reduce the lease term for periods ranging from five to 10 years, however the remaining lease terms do not represent these early termination dates as management have concluded that it is reasonably certain that the Company will not exercise these options. The renewal terms can extend the lease term for additional periods ranging from three to five years. These renewal options are represented in the remaining lease term as management have concluded that it is reasonably certain that the Company will exercise the renewal option. Certain leases contain variable lease payments, including payments based on an index or rate. Variable lease payments based on an index or rate are initially measured using the index or rate in effect at lease commencement. Certain agreements contain both lease and non-lease components. The Company has elected to separately account for these components in determining the lease liabilities and right-of-use assets. The Company’s lease agreements generally do not provide an implicit borrowing rate, therefore an internal incremental borrowing rate was determined based on information available at lease commencement date for the purposes of determining the present value of lease payments. The Company used the incremental borrowing rate on January 1, 2019 for all leases that commenced prior to that date. All operating lease expense is recognized on a straight-line basis over the lease term. The Company recognized $254 of operating lease costs for right-of-use assets during the three months ended March 31, 2019.

 

 

 

 

 

 

9

 


ITERUM THERAPEUTICS PLC

Notes to Condensed Consolidated Financial Statements

(In thousands, except share and per share data)

(Unaudited)

 

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

 

 

 

Three Months Ended

 

 

 

March 31,

2019

 

Cash paid for operating lease liabilities

 

$

190

 

Right-of-use assets obtained in exchange for new operating lease obligation (1)

 

$

7,622

 

Weighted-average remaining lease term

 

13.2 years

 

Weighted-average discount rate

 

 

7.6

%

    (1) All operating leases included above were held at January 1, 2019

 

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

 

 

 

March 31,

2019

 

Other assets

 

$

7,504

 

 

 

 

 

 

Other current liabilities

 

$

442

 

Other liabilities

 

 

7,117

 

Total lease liabilities

 

$

7,559

 

 

Future lease payments included in the measurement of lease liabilities on the condensed consolidated balance sheet as of March 31, 2019, for the following five fiscal years and thereafter were as follows:

 

Due in 12 month period ended March 31,

 

 

 

 

2020

 

$

982

 

2021

 

 

1,017

 

2022

 

 

1,022

 

2023

 

 

1,033

 

2024

 

 

1,038

 

Thereafter

 

 

6,420

 

 

 

$

11,512

 

Less imputed interest

 

 

(3,953

)

Total lease liabilities

 

$

7,559

 

 

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

 

Due in 12 month period ended December 31,

 

 

 

 

2019

 

$

904

 

2020

 

 

1,020

 

2021

 

 

1,030

 

2022

 

 

985

 

2023

 

 

766

 

Thereafter

 

 

2,356

 

 

 

$

7,061

 

 

 

 

10

 


ITERUM THERAPEUTICS PLC

Notes to Condensed Consolidated Financial Statements

(In thousands, except share and per share data)

(Unaudited)

 

8. Accrued Expenses

Accrued expenses consist of the following:

 

 

March 31,

2019

 

 

December 31,

2018

 

Accrued clinical trial costs

 

$

6,383

 

 

$

2,849

 

Accrued manufacturing expenses

 

 

859

 

 

 

1,439

 

Accrued other expenses

 

 

843

 

 

 

954

 

Accrued payroll and bonus expenses

 

 

611

 

 

 

1,804

 

Total

 

$

8,696

 

 

$

7,046

 

 

9. Shareholders’ Equity

The following tables present a reconciliation of our beginning and ending balances in shareholders’ equity for the three months ended March 31, 2019 and 2018:

 

 

 

Total

Shareholders'

Equity

 

Shareholders' equity at January 1, 2019

 

$

71,622

 

Exercise of share options

 

 

48

 

Share-based compensation expense

 

 

540

 

Net loss

 

 

(20,580

)

Shareholders' equity at March 31, 2019

 

$

51,630

 

 

 

 

Total

Shareholders'

Equity

 

Shareholders' equity at January 1, 2018

 

$

39,494

 

Issuance of Series B convertible preferred shares, net

 

 

32,159

 

Share-based compensation expense

 

 

149

 

Net loss

 

 

(12,146

)

Shareholders' equity at March 31, 2018

 

$

59,656

 

 

10. Share-Based Compensation

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

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

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

11

 


ITERUM THERAPEUTICS PLC

Notes to Condensed Consolidated Financial Statements

(In thousands, except share and per share data)

(Unaudited)

 

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

Restricted Ordinary Shares

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

The Company records share-based compensation expense for the restricted ordinary shares based on the grant date fair value. The Company recorded an expense of $85 and $82 for the three months ended March 31, 2019 and 2018, respectively. Total unamortized compensation expense related to restricted ordinary shares was $175 and $510 as of March 31, 2019 and March 31, 2018, respectively, expected to be recognized over a weighted average period of 0.54 years and 1.54 years as of March 31, 2019 and March 31, 2018, respectively.

The following table summarizes restricted ordinary shares activity for the three months ended March 31, 2019:

 

 

 

Number of Shares

 

 

Weighted

Average Grant Date Fair Value per Share

 

Unvested at December 31, 2018

 

 

86,068

 

 

$

3.14

 

Granted

 

 

 

 

 

 

 

Vested

 

 

(25,818

)

 

$

3.14

 

Forfeited

 

 

 

 

 

 

 

Unvested at March 31, 2019 (unaudited)

 

 

60,250

 

 

$

3.14

 


Share Options

The Company granted 442,500 share options to employees and directors during the three months ended March 31, 2019. The Company awarded 74,152 share options to employees during the three months ended March 31, 2018 under the 2018 Plan. These options were granted and priced upon execution of the underwriting agreement related to the IPO in May 2018. There were 984,913 and 221,553 unvested employee options outstanding as of March 31, 2019 and March 31, 2018, respectively. Total expense recognized related to the employee share options was $307 and $67 for the three months ended March 31, 2019 and 2018, respectively. Total unamortized compensation expense related to employee share options was $4,168 and $1,132 as of March 31, 2019 and March 31, 2018, respectively, which is expected to be recognized over a remaining average vesting period of 3.30 years and 3.27 years as of March 31, 2019 and March 31, 2018, respectively.

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

 

 

 

 

Three Months Ended March 31,

 

 

 

 

2019

 

 

2018

 

Volatility

 

 

69.5% - 70.2%

 

 

 

60%

 

Expected term in years

 

 

 

6.25

 

 

 

6.25

 

Dividend rate

 

 

 

0%

 

 

 

0%

 

Risk-free interest rate

 

 

2.44% - 2.57%

 

 

 

1.63%

 

Share price

 

 

$5.80 - $6.80

 

 

 

 

Fair value of option on grant date

 

 

$3.74 - $4.41

 

 

 

 

12

 


ITERUM THERAPEUTICS PLC

Notes to Condensed Consolidated Financial Statements

(In thousands, except share and per share data)

(Unaudited)

 

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

 

 

 

Number of

Shares

 

 

Weighted

Average Exercise

Price

 

 

Weighted

Average

Remaining

Contractual Life

in Years

 

 

Aggregate

Intrinsic

Value

(in thousands)

 

Options outstanding December 31, 2018

 

 

665,219

 

 

$

9.31

 

 

 

8.93

 

 

395

 

Granted

 

 

442,500

 

 

 

5.82

 

 

 

 

 

 

 

 

 

Exercised

 

 

(15,395

)

 

 

3.16

 

 

 

 

 

 

 

 

 

Forfeited

 

 

(1,086

)

 

 

9.44

 

 

 

 

 

 

 

 

 

Options outstanding March 31, 2019

 

 

1,091,238

 

 

$

7.98

 

 

 

9.27

 

 

 

1,956

 

Exercisable at March 31, 2019 (unaudited)

 

 

106,325

 

 

$

4.59

 

 

 

8.25

 

 

 

425

 

 

Restricted share units (RSUs)

No RSUs were awarded to directors during the three months ended March 31, 2019. No RSUs were awarded or outstanding during the three months ended March 31, 2018.

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, 2018

 

 

36,924

 

 

$

13.00

 

Granted

 

 

 

 

 

 

 

Shares vested

 

 

 

 

 

 

 

Forfeited

 

 

 

 

 

 

 

RSUs outstanding March 31, 2019

 

 

36,924

 

 

$

13.00

 

 

The fair value of 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 $119 for the three months ended March 31, 2019. Total unamortized compensation expense related to RSUs was $72 as of March 31, 2019, which is expected to be recognized over a remaining average vesting period of 0.15 years as of March 31, 2019.

The Company awarded 50,000 RSUs to certain employees during the three months ended March 31, 2019 which are subject to certain performance based vesting conditions (Performance RSUs). No Performance RSUs were awarded or outstanding during the three months ended March 31, 2018.

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

 

 

Number of

Shares

 

 

Weighted Average

Grant Date Fair

Value per Share

 

Performance RSUs outstanding December 31, 2018

 

 

 

 

 

 

 

Granted

 

 

50,000

 

 

$

8.21

 

Shares vested

 

 

 

 

 

 

 

Forfeited

 

 

 

 

 

 

 

Performance RSUs outstanding March 31, 2019

 

 

50,000

 

 

$