Iterum Therapeutics(ITRM) - 2020 Q2 - Quarterly Report

Special Note Regarding Forward-Looking Statements Forward-Looking Statements Disclosure This section outlines the report's forward-looking statements, cautioning investors about inherent risks and potential material differences from actual results - The report contains forward-looking statements identifiable by specific words like 'anticipate,' 'believe,' 'expect,' 'intend,' 'may,' 'plan,' 'potential,' 'will,' and 'would'[7] - Key areas include cash reserves, clinical trial timing, product advancement, regulatory approvals, commercialization, manufacturing, sales, market acceptance, pricing, business model, intellectual property, financing, COVID-19 impact, financial performance, competition, strategic alternatives, going concern, Nasdaq listing, and planned rights offering[8] - Investors are cautioned against relying on forward-looking statements as actual results may differ materially due to risks detailed in 'Risk Factors'[9][10] Part I. Financial Information Item 1. Financial Statements (Unaudited) This section presents Iterum Therapeutics plc's unaudited condensed consolidated financial statements, highlighting significant losses and going concern doubt Condensed Consolidated Balance Sheets (as of June 30, 2020 vs. December 31, 2019, in thousands) | Metric | June 30, 2020 | December 31, 2019 | | :-------------------------------- | :------------ | :------------------ | | Assets | | | | Cash and cash equivalents | $12,250 | $4,801 | | Total current assets | $18,076 | $11,718 | | Total assets | $31,687 | $25,751 | | Liabilities and Shareholders' Deficit | | | | Accounts payable | $2,246 | $15,486 | | Accrued expenses | $3,948 | $12,458 | | Derivative liability | $25,371 | — | | Total current liabilities | $40,616 | $36,986 | | Total liabilities | $80,476 | $51,989 | | Accumulated deficit | $(263,544) | $(234,923) | | Total shareholders' deficit | $(48,789) | $(26,238) | Condensed Consolidated Statements of Operations and Comprehensive Loss (Three Months Ended June 30, 2020 vs. 2019, in thousands) | Metric | June 30, 2020 | June 30, 2019 | | :------------------------------------------ | :------------ | :------------ | | Revenue | $— | $— | | Research and development expenses | $(5,043) | $(24,439) | | General and administrative expenses | $(3,210) | $(2,939) | | Total operating expenses | $(8,253) | $(27,378) | | Operating loss | $(8,253) | $(27,378) | | Interest expense, net | $(4,075) | $(135) | | Adjustments to fair value of derivatives | $(12) | $— | | Net loss and comprehensive loss | $(12,521) | $(27,638) | | Net loss per share (basic and diluted) | $(0.80) | $(1.93) | Condensed Consolidated Statements of Operations and Comprehensive Loss (Six Months Ended June 30, 2020 vs. 2019, in thousands) | Metric | June 30, 2020 | June 30, 2019 | | :------------------------------------------ | :------------ | :------------ | | Revenue | $— | $37 | | Research and development expenses | $(14,786) | $(41,826) | | General and administrative expenses | $(6,361) | $(6,055) | | Total operating expenses | $(21,147) | $(47,881) | | Operating loss | $(21,147) | $(47,844) | | Interest expense, net | $(6,671) | $(239) | | Private placement transaction costs | $(2,130) | $— | | Adjustments to fair value of derivatives | $1,667 | $— | | Net loss and comprehensive loss | $(28,621) | $(48,218) | | Net loss per share (basic and diluted) | $(1.87) | $(3.37) | Condensed Consolidated Statements of Cash Flows (Six Months Ended June 30, 2020 vs. 2019, in thousands) | Metric | June 30, 2020 | June 30, 2019 | | :------------------------------------------ | :------------ | :------------ | | Net cash used in operating activities | $(41,080) | $(33,459) | | Net cash (used in) / provided by investing activities | $(2) | $40,078 | | Net cash provided by financing activities | $48,581 | $59 | | Net increase in cash, cash equivalents and restricted cash | $7,466 | $6,660 | | Cash, cash equivalents and restricted cash, at end of period | $12,357 | $51,331 | Notes to Unaudited Condensed Consolidated Financial Statements This section provides detailed notes to the financial statements, covering the company's business, financing activities, fair value measurements, and going concern assessment - The company is a clinical-stage pharmaceutical company developing sulopenem, with no product revenue since its November 2015 inception[21][22] - Operations have been funded through equity, debt (SVB, PPP loan), a CARB-X sub-award, and proceeds from Exchangeable Notes and Royalty-Linked Notes (RLNs)[22] - Management concluded substantial doubt exists about the company's ability to continue as a going concern within one year due to operating losses and capital needs[38] - The COVID-19 pandemic creates significant uncertainty regarding its impact on the company's financial condition, liquidity, operations, and capital access[39][40] Fair Value of Financial Assets and Liabilities (June 30, 2020, in thousands) | Liabilities | Book Value | Approximate Fair Value | Level 1 | Level 2 | Level 3 | | :------------------------------------------ | :--------- | :--------------------- | :------ | :------ | :------ | | Current portion of long-term debt | $5,930 | $5,930 | — | $5,930 | — | | Long-term debt, less current portion | $5,366 | $5,079 | — | $5,079 | — | | Long-term exchangeable note | $15,565 | $28,578 | — | $28,578 | — | | Derivative liability - exchange option and change of control | $25,371 | $25,371 | — | — | $25,371 | | Current portion of royalty linked notes | $53 | $53 | — | — | $53 | | Long-term royalty linked notes, less current portion | $11,826 | $12,993 | — | — | $12,993 | | Total | $64,111 | $78,004 | — | $39,587 | $38,417 | - The company issued $51.6 million in 6.500% Exchangeable Senior Subordinated Notes due 2025 and $0.1 million in Limited Recourse Royalty-Linked Subordinated Notes (RLNs) in January 2020, yielding approximately $46.4 million in net proceeds[25][92][158] - Exchangeable Notes include an embedded exchange option and change of control feature, accounted for as a Derivative liability and revalued each reporting period[95] - RLNs entitle holders to payments based on a percentage of U.S. net revenues from specified sulopenem products, capped at $160.00 per RLN, and are accounted for as a debt liability amortized using the effective interest method[25][103][104] - In June 2020, two registered direct offerings issued 2,971,770 ordinary shares for $4.3 million net proceeds and 3,372,686 ordinary shares for $4.4 million net proceeds, along with warrants[31][32][113][114] - The company received a $0.7 million Paycheck Protection Program (PPP) loan in April 2020, with a 1% annual interest rate and two-year maturity, expecting partial forgiveness[30][101] Shareholders' Deficit Reconciliation (Six Months Ended June 30, 2020, in thousands) | Metric | Total Shareholders' Deficit | | :-------------------------------- | :-------------------------- | | Shareholders' deficit at January 1, 2020 | $(26,238) | | Share-based compensation expense | $1,783 | | Issuance of ordinary shares, net | $2,564 | | Issuance of warrants | $1,723 | | Net loss | $(28,621) | | Shareholders' deficit at June 30, 2020 | $(48,789) | - A license agreement with Pfizer grants worldwide exclusive rights to sulopenem, obligating the company to pay potential future regulatory and sales milestones, plus single-digit to mid-teens percentage royalties on net sales[141][142] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section reviews the company's financial condition and operational results, focusing on sulopenem development, recent financing, operating losses, and liquidity challenges, including going concern doubt - Iterum Therapeutics is a clinical-stage pharmaceutical company developing sulopenem as a potential first and only oral and intravenous (IV) branded penem globally for drug-resistant bacterial infections[154] - Phase 3 clinical trials for complicated intra-abdominal infection (cIAI) did not meet the primary endpoint, while trials for complicated urinary tract infection (cUTI) and uncomplicated urinary tract infection (uUTI) also did not meet primary non-inferiority endpoints, though uUTI showed superiority in quinolone-resistant pathogens[155] - The company had an accumulated deficit of $263.5 million as of June 30, 2020, and expects to continue incurring significant operating losses, requiring additional capital to fund operations[165][166] - As of June 30, 2020, cash, cash equivalents, and restricted cash totaled $12.4 million, with an estimated runway into Q4 2020, leading to substantial doubt about the company's ability to continue as a going concern for the next 12 months[168] - The company is evaluating corporate, organizational, strategic, financial, and financing alternatives, including potential licensing, asset sales, mergers, or other strategic transactions, to maximize stakeholder value and manage resources[169] - The COVID-19 pandemic has disrupted business operations, clinical trials, supply chains, and capital markets, with an uncertain ultimate impact on the company's financial condition and liquidity[171][172] Overview This overview details Iterum Therapeutics' focus on sulopenem development, recent clinical trial outcomes, financing activities, and ongoing liquidity challenges, including the impact of COVID-19 - Iterum Therapeutics is a clinical-stage pharmaceutical company focused on developing sulopenem, a novel anti-infective compound, as a potential first and only oral and intravenous (IV) branded penem globally[154] - The company initiated three Phase 3 clinical trials in 2018 for uncomplicated urinary tract infections (uUTI), complicated urinary tract infections (cUTI), and complicated intra-abdominal infection (cIAI)[155] - Sulopenem did not meet the primary endpoint of statistical non-inferiority in the cIAI and cUTI trials, but in the uUTI trial, it demonstrated superiority in quinolone-resistant pathogens despite not meeting non-inferiority against ciprofloxacin[155] - The company completed a private placement in January 2020, issuing $51.6 million in Exchangeable Notes and $0.1 million in Royalty-Linked Notes (RLNs), generating $46.4 million in net proceeds[158][159] - A planned rights offering for additional Units (Exchangeable Notes and RLNs) is anticipated to begin around August 11, 2020, seeking up to $8.4 million[160] - The company received a $0.7 million Paycheck Protection Program (PPP) loan in April 2020 and is deferring U.S. payroll taxes as allowed by the CARES Act[161][162] - Two registered direct offerings in June 2020 raised approximately $8.7 million in net proceeds through the issuance of ordinary shares and warrants[163][164] - The company had an accumulated deficit of $263.5 million as of June 30, 2020, and expects continued significant expenses, necessitating additional capital to fund operations[165][166] - Cash, cash equivalents, and restricted cash of $12.4 million as of June 30, 2020, are estimated to fund operations into Q4 2020, leading to substantial doubt about the company's ability to continue as a going concern[168] - The company is actively monitoring the impact of the COVID-19 pandemic on its financial condition, liquidity, operations, and strategic targets, noting significant disruptions and uncertainties[171][172] Components of Our Results of Operations This section outlines the key components of the company's financial results, including revenue sources, research and development, general and administrative, interest, and derivative adjustments - The company has not generated product revenue to date, with all revenue derived from a CARB-X award (cost reimbursement arrangement) that concluded in March 2019[173] - Research and development expenses primarily include costs for CROs, CMOs, clinical trials, manufacturing, employee-related expenses, regulatory compliance, and third-party licensing agreements[174] - General and administrative expenses consist mainly of salaries, benefits, share-based compensation for executive, finance, and administrative personnel, as well as professional fees and market preparation expenses[179] - Interest expense, net, includes interest and debt amortization from the SVB loan, PPP loan, Exchangeable Notes, and RLNs, offset by interest earned on cash[181] - Private placement transaction costs are specifically allocated to the Derivative liability[182] - Adjustments to fair value of derivatives reflect the revaluation of derivative liabilities at each balance sheet date[183] - Other (expense) / income, net, primarily consists of realized and unrealized foreign currency gains and losses[184] - Income taxes are recognized under the asset and liability method, with a full valuation allowance against net deferred tax assets due to a history of losses[185][186] Critical Accounting Policies and Significant Judgments and Estimates This section highlights critical accounting policies, particularly for Exchangeable Notes, derivative liabilities, and Royalty-Linked Notes, which involve significant management estimates and judgments - The company's critical accounting policies, including those for Exchangeable Notes, derivative liabilities, and Royalty-Linked Notes, involve significant management estimates and judgments that could materially affect reported financial condition and results[188] Results of Operations This section analyzes the company's operating results, detailing changes in research and development, general and administrative expenses, and interest expenses for the three and six months ended June 30, 2020 Operating Losses (Three Months Ended June 30, 2020 vs. 2019, in thousands) | Metric | June 30, 2020 | June 30, 2019 | Change | | :-------------------------- | :------------ | :------------ | :----- | | Research and development | $(5,043) | $(24,439) | $19,396 | | General and administrative | $(3,210) | $(2,939) | $(271) | | Total operating expenses | $(8,253) | $(27,378) | $19,125 | | Operating loss | $(8,253) | $(27,378) | $19,125 | - Research and development expenses decreased by $19.4 million for the three months ended June 30, 2020, primarily due to completed Phase 3 clinical trial enrollment and reduced CMC-related expenses[190] - General and administrative expenses increased by $0.3 million for the three months ended June 30, 2020, mainly due to higher share-based compensation and increased legal fees[191][192] - Interest expense, net, increased by $3.9 million for the three months ended June 30, 2020, driven by interest and debt amortization related to Exchangeable Notes and RLNs issued in January 2020[193][194] Operating Losses (Six Months Ended June 30, 2020 vs. 2019, in thousands) | Metric | June 30, 2020 | June 30, 2019 | Change | | :-------------------------- | :------------ | :------------ | :----- | | Revenue | $— | $37 | $(37) | | Research and development | $(14,786) | $(41,826) | $27,040 | | General and administrative | $(6,361) | $(6,055) | $(306) | | Total operating expenses | $(21,147) | $(47,881) | $26,734 | | Operating loss | $(21,147) | $(47,844) | $26,697 | - Research and development expenses decreased by $27.0 million for the six months ended June 30, 2020, primarily due to reduced costs for Phase 3 clinical trials and CMC activities[198][199] - General and administrative expenses increased by $0.3 million for the six months ended June 30, 2020, mainly due to higher share-based compensation and increased insurance costs[200] - Interest expense, net, increased by $6.4 million for the six months ended June 30, 2020, primarily due to interest and debt amortization from the Exchangeable Notes and RLNs[201][202] - Private placement transaction costs of $2.1 million were incurred for the six months ended June 30, 2020, allocated to the Derivative liability[203] - Adjustments to fair value of derivatives resulted in a $1.7 million gain for the six months ended June 30, 2020[204] Liquidity and Capital Resources This section discusses the company's liquidity position, capital funding history, and ongoing need for additional capital, highlighting significant operating losses and going concern doubt - The company has incurred significant operating losses and negative cash flows since inception, funding operations primarily through equity, debt, and government awards[206] - As of June 30, 2020, cash, cash equivalents, and restricted cash totaled $12.4 million[207] - The company believes there is substantial doubt about its ability to continue as a going concern due to insufficient funding for the next 12 months[208] - The secured credit facility with SVB had an initial $15 million draw, with monthly amortization payments commencing November 2019; the second $15 million draw was not met by the October 2019 deadline[209][210] - The 2025 Exchangeable Notes and Royalty-Linked Notes (RLNs) from the January 2020 private placement generated approximately $46.4 million in net proceeds[213][214] - A planned rights offering for additional Units (Exchangeable Notes and RLNs) is expected to seek up to $8.4 million[215] - Registered direct offerings in June 2020 raised approximately $8.6 million in net proceeds from the sale of ordinary shares and warrants[216][217] - The company received a $0.7 million PPP loan in April 2020, with potential for forgiveness if used for qualifying payroll and operating expenses[219][220] Cash Flows (Six Months Ended June 30, 2020 vs. 2019, in thousands) | Cash Flow Activity | June 30, 2020 | June 30, 2019 | | :------------------------------------------ | :------------ | :------------ | | Net cash used in operating activities | $(41,080) | $(33,459) | | Net cash (used in) / provided by investing activities | $(2) | $40,078 | | Net cash provided by financing activities | $48,581 | $59 | | Net increase in cash, cash equivalents and restricted cash | $7,466 | $6,660 | - Operating activities used $41.1 million in cash in H1 2020, primarily due to net loss and decreases in accounts payable and accrued expenses from clinical trial payments[222] - Financing activities provided $48.6 million in cash in H1 2020, mainly from the private placement, registered direct offerings, and the PPP loan, partially offset by debt repayments[225] Contractual Obligations (as of June 30, 2020, in thousands) | Obligation | Total | Less than 1 year | 1 to 3 years | 4 to 5 years | More than 5 years | | :-------------------------- | :---- | :--------------- | :----------- | :----------- | :---------------- | | Operating lease commitments | $5,382 | $1,020 | $1,815 | $1,267 | $1,280 | | Principal debt repayments | $63,298 | $6,207 | $5,400 | $51,588 | $103 | | Total | $68,680 | $7,227 | $7,215 | $52,855 | $1,383 | Item 3. Quantitative and Qualitative Disclosures About Market Risk This section details the company's market risk exposure, primarily from foreign currency fluctuations and interest rate changes on its secured credit facility - As of June 30, 2020, the company held $12.3 million in cash and cash equivalents, consisting solely of cash, with no marketable securities[236] - The company is exposed to foreign currency fluctuations due to global contracts, but substantially all liabilities are U.S. dollar-denominated, resulting in no material impact from foreign currency gains/losses for the periods presented[237] - The interest rate on the secured credit facility is floating, tied to the greater of 8.31% or 3.89% above the Wall Street Journal prime rate, which has decreased significantly in 2019-2020[238] Item 4. Controls and Procedures Management, including the CEO and CFO, evaluated the effectiveness of the company's disclosure controls and procedures as of June 30, 2020, concluding they were effective - As of June 30, 2020, the company's disclosure controls and procedures were evaluated and deemed effective at the reasonable assurance level by management, including the CEO and CFO[239] - No material changes in internal control over financial reporting occurred during the three months ended June 30, 2020[240] Part II. Other Information Item 1. Legal Proceedings The company is not currently involved in any legal proceedings that management believes would have a material adverse effect on its business - The company is not currently a party to any legal proceedings that, in management's opinion, would have a material adverse effect on its business[243] Item 1A. Risk Factors This section details significant risks that could materially and adversely affect the company's business, financial condition, results of operations, and future growth prospects - Investing in the company's ordinary shares involves a high degree of risk, and if any described risk factors occur, the business, financial condition, results of operations, and future growth prospects could be materially and adversely affected[244] Risks Related to Our Financial Position and Capital Requirements This section outlines risks associated with the company's financial position, including accumulated losses, the need for additional capital, going concern doubt, and potential financing constraints - The company has incurred net losses since inception, with an accumulated deficit of $263.5 million as of June 30, 2020, and expects to continue incurring significant losses[245] - The company will require additional capital to fund operations, and there is substantial doubt about its ability to continue as a going concern for one year from the 10-Q filing date[248][249] - Failure to obtain financing on acceptable terms could force delays, reductions, or termination of development and commercialization efforts[250] - The company is evaluating strategic alternatives, including asset sales, mergers, or liquidation, with no assurance of a successful outcome[251] - Provisions in private placement documents (Exchangeable Notes and RLNs indentures, investor rights agreement) may deter or prevent the company from raising additional capital due to negative covenants and Sarissa's right of first offer[253][254][255] - The company is substantially dependent on the success of its sulopenem program, and failure to achieve profitability would decrease company value and impair capital raising ability[256][258] - Indebtedness imposes operating restrictions and could adversely affect the ability to raise additional capital, with failure to comply potentially leading to acceleration of debt and foreclosure on assets[259][260][261] - Servicing indebtedness will require significant cash, and insufficient cash flow could necessitate selling assets, restructuring debt, or obtaining dilutive equity capital[262] - The company may not have funds to settle Exchangeable Notes in cash or repurchase them upon a fundamental change, which could trigger default[264][265] - The exchange feature of Exchangeable Notes could adversely affect financial condition and operating results if settled in cash[266] - The company has a limited operating history and no commercialization history, making future viability predictions difficult[267] - Raising additional capital through equity or convertible debt could dilute existing shareholders, impose restrictive covenants, or require relinquishing rights to technologies[269][272][273][274] - Limited resources may be expended on less profitable product candidates or indications, potentially missing greater commercial opportunities[275][276] Risks Related to Clinical Development and Commercialization This section details risks concerning the development and commercialization of sulopenem, including clinical trial failures, regulatory approval challenges, market acceptance, competition, and commercialization capabilities - The company is heavily dependent on the successful development, marketing approval, and commercialization of oral sulopenem and sulopenem; failure or delays would materially harm the business[278][280] - The company has no prior experience in obtaining regulatory approval for a drug, and the FDA may refuse applications or require additional costly studies, delaying or denying approval[281][282] - Clinical trials for cIAI and cUTI did not meet primary non-inferiority endpoints, and while uUTI showed superiority in quinolone-resistant pathogens, overall non-inferiority was not met, creating uncertainty for regulatory filing options[283][284] - Failure of clinical trials to demonstrate safety and efficacy, or unfavorable results, could lead to additional costs, delays, or inability to complete development and commercialization[286][291][292] - Delays or difficulties in patient enrollment for clinical trials, including planned Phase 1 pediatric trials, could adversely affect clinical development activities and increase costs[293][294][295] - Serious adverse events or undesirable side effects identified during development or after approval could delay, prevent, or cause withdrawal of regulatory approval, limit commercial potential, or result in negative consequences[298][302][303] - Even if approved, product candidates may not achieve market acceptance by physicians, patients, hospitals, and third-party payors, potentially limiting commercial success due to existing therapies, resistance concerns, and pricing[304][305][308] - The company currently lacks a commercial organization and must build or outsource sales, marketing, and distribution capabilities, which is costly, time-consuming, and subject to risks, including global health crises like COVID-19[309][310][311][315] - The company faces substantial competition from major pharmaceutical, specialty, and biotechnology companies with greater resources and expertise, including existing oral and IV therapies and product candidates in development[316][317][318][319][320] - Commercialized products may be subject to unfavorable pricing regulations or inadequate third-party payor coverage and reimbursement policies, hindering profitability[322][323][324][325][327] - Bacteria may develop resistance to oral sulopenem or sulopenem, affecting revenue potential, especially if resistance mechanisms like carbapenemases become widespread[328][329] - The company faces costly product liability claims related to clinical trials and products, with current insurance potentially insufficient, leading to significant financial impact[330][331][332] - Operations involving hazardous materials expose the company to regulatory compliance costs and significant potential liabilities for contamination or injury[333] - Significant disruptions in information technology systems or data security breaches could adversely affect business operations, financial condition, and reputation[334] Risks Related to Our Dependence on Third Parties This section addresses risks arising from the company's reliance on third parties for intellectual property licensing, development collaborations, clinical trials, and manufacturing - The company heavily relies on the Pfizer License for patent rights and know-how for sulopenem development; failure to comply with obligations could lead to termination of the license and material harm to the business[335][336][337] - Dependence on third-party collaborations for development and commercialization in certain territories poses risks, including collaborators' discretion, potential non-performance, delays, and disagreements, which could impact revenue generation[338][339][340][341] - Reliance on third parties (CROs, clinical data management, investigators) to conduct preclinical studies and clinical trials limits control and could lead to delays or inability to obtain regulatory approval if they fail to perform or comply with regulations[342][343][344][345] - Contracting with third parties for manufacturing preclinical and clinical supplies, and future commercial supplies, increases risks of insufficient quantities, unacceptable costs, manufacturing delays, regulatory non-compliance, and misappropriation of trade secrets[346][347][348][349][350][351][352][354] Risks Related to Our Intellectual Property This section details risks concerning the company's intellectual property, including reliance on the Pfizer License, challenges in obtaining and maintaining patent protection, and potential infringement claims - The company heavily relies on the Pfizer License for intellectual property rights for oral sulopenem and know-how for IV sulopenem, as it owns no patents and existing sulopenem compound patents have expired[355] - Inability to obtain or maintain broad patent protection or other intellectual property rights for sulopenem or other product candidates could harm the business and competitive position[358][359][361][362][363] - The U.S. government may have march-in rights to government-funded technology, potentially allowing third parties to use licensed technology and harming the company's competitive position[364][365] - Failure to identify or correctly interpret third-party patents could negatively impact the ability to develop and market product candidates[366] - Patent protection for product candidates may expire before maximizing commercial value, leading to increased competition and reduced revenue opportunities[367][370] - Changes in patent laws or jurisprudence, such as the America Invents Act (AIA) and Supreme Court rulings, could diminish patent value and increase prosecution/defense costs[373][374][376][377][378][379] - Involvement in lawsuits to protect or enforce intellectual property can be expensive, time-consuming, and unsuccessful, potentially leading to patent invalidation, narrow claim construction, or diversion of management attention[380][382] - Third parties may initiate legal proceedings alleging infringement, misappropriation, or violation of their intellectual property, leading to substantial litigation expense, damages, or the need for costly licenses[383][384][385][386][387] - Inability to protect intellectual property rights globally, especially in countries with weaker laws, could negatively impact business and allow competitors to use technologies without payment[388][389][390] - Claims that employees or contractors infringed third-party IP or claims of ownership over the company's IP could lead to litigation, loss of rights, or diversion of resources[391][392] - Failure to comply with procedural, document submission, and fee payment requirements for patents could result in abandonment or lapse of patent rights[393] - Inability to protect the confidentiality of trade secrets could materially adversely affect technology value and competitive position, as trade secrets can be independently developed or disclosed[394][395][396] - Failure to secure trademark registrations in all jurisdictions could hinder enforcement against third parties and impact name recognition, affecting competitive effectiveness[397][398][399] Risks Related to Regulatory Approval and Other Legal Compliance Matters This section covers risks associated with regulatory approvals, ongoing compliance, healthcare laws, anti-corruption, data privacy, and potential misconduct, all of which could significantly impact the business - Failure to obtain or delays in obtaining required regulatory approvals for sulopenem or other product candidates will materially impair the ability to commercialize and generate revenue[400] - The time required for FDA and foreign regulatory approval is unpredictable, can take many years, and is subject to substantial discretion by authorities, with no guarantee of approval[401] - The FDA or foreign regulatory bodies may require additional non-clinical studies or clinical trials, or object to development program elements, even with SPA agreements[402][403][404] - Future legislation, regulations, and policies by regulatory authorities may increase the time and cost for clinical trials and approvals[406] - Inability to obtain marketing approval outside the United States, including in Europe, would prevent commercialization in those markets, with Brexit adding further uncertainty to the UK regulatory regime[407][408][409][410] - Non-U.S. regulatory authorities, like the EMA, may require additional clinical trials or studies for cUTI indication approval due to differing requirements or interpretations of data[411][412] - Approved products are subject to ongoing regulatory obligations and review, which can result in significant expenses, restrictions, or withdrawal from the market if compliance failures or unanticipated problems occur[413][414][415] - Failure to comply with federal and state healthcare laws, including anti-kickback, false claims, and health information privacy laws (HIPAA, HITECH), could lead to substantial penalties, reputational damage, and adverse effects on business[416][417][418][419][420] - Healthcare legislative reforms, such as the ACA and subsequent changes, aim to reduce healthcare costs and could materially adversely affect the business and results of operations through reduced demand or pricing pressures[421][423][424][425][426][427][428][429][430][431][432][433][434][435][436] - The company is subject to anti-corruption laws (FCPA, Irish Criminal Justice Act) and trade control laws; non-compliance could result in civil/criminal penalties, sanctions, and reputational harm[437][438][439][440] - Compliance with evolving global privacy and data security requirements (e.g., GDPR, CCPA) is rigorous and costly; failure to comply could lead to significant fines, penalties, litigation, and reputational damage[441][442][443][444] - Misconduct by employees, contractors, or vendors, including non-compliance with regulatory standards or fraudulent activities, could result in regulatory sanctions, legal actions, and significant financial and reputational harm[445] Risks Related to Employee Matters and Managing Growth This section addresses risks related to retaining key personnel, managing organizational growth, operating internationally, and the impact of public health emergencies like COVID-19 - Future success depends on retaining key executives (CEO, CSO) and attracting/retaining qualified personnel; loss of key individuals or inability to hire could seriously harm business strategy[446][447] - Difficulties in managing growth, particularly in manufacturing, regulatory affairs, sales, marketing, and health resources, could disrupt operations, divert management attention, and lead to inefficiencies or financial losses[448][449] - Conducting business in markets outside the United States exposes the company to additional risks, including reduced intellectual property protection, trade barriers, economic instability, and geopolitical events, which could adversely affect revenue[450] - Pandemics, epidemics, or public health emergencies like COVID-19 can adversely affect business, clinical trials, regulatory activities, and financial markets, leading to delays, disruptions, and uncertain long-term impacts[451][452][453][454][455] - Engaging in acquisitions could disrupt business, cause shareholder dilution, reduce financial resources, and may be subject to consent requirements from debt holders and investors[456] Risks Related to Taxation This section outlines tax-related risks, including potential Passive Foreign Investment Company (PFIC) status, U.S. federal income tax consequences, Irish stamp duty, dividend withholding tax, and capital acquisitions tax - The company was a Passive Foreign Investment Company (PFIC) in 2017 and could be in the future, potentially subjecting U.S. Holders to adverse U.S. federal income tax consequences, including deferred tax and interest charges[457][461] - U.S. Holders may not be able to make a Qualified Electing Fund (QEF) election, and a mark-to-market election could lead to phantom income and out-of-pocket tax liability[462][463] - Changes to U.S. federal income tax laws could have material consequences for the company and U.S. Holders[465] - Transfers of ordinary shares not effected through DTC may be subject to Irish stamp duty (currently 1%), which is generally a transferee's obligation and could adversely affect share price[466] - Dividends paid may be subject to Irish dividend withholding tax (currently 25%), though exemptions exist for certain shareholders, including those in EU member states or treaty countries like the U.S., provided proper documentation is in place[467] - Dividends received by Irish residents and certain other shareholders may be subject to Irish income tax[468] - Ordinary shares received as a gift or inheritance could be subject to Irish capital acquisitions tax (CAT) because the shares are considered property situated in Ireland[469] Risks Related to Our Ordinary Shares This section addresses risks concerning the company's ordinary shares, including market volatility, delisting potential, dilution, control by principal shareholders, and differences in Irish and U.S. laws - An active trading market for ordinary shares may not be sustained, potentially leading to downward pressure on the market price and impairing capital raising ability[470] - The price of ordinary shares has been volatile and could fluctuate due to various factors, including clinical trial results, regulatory approvals, financing alternatives, and general economic conditions, potentially leading to a decline in investment value[471][472] - Failure to meet Nasdaq Global Market listing requirements (e.g., minimum market value of listed securities) could result in delisting, negatively impacting share price, access to capital markets, and potentially triggering debt defaults[473][476] - The Royalty-Linked Notes (RLNs) transfer rights to future sulopenem sales payments, which may reduce the company's ability to realize potential revenue and require cash resources for redemption, adversely affecting company value[478][479][480][481] - Lack of research coverage by securities analysts or adverse opinions could cause share price and trading volume to decline[482] - Principal shareholders and management own a significant percentage of ordinary shares (approximately 54.0% as of July 31, 2020, potentially 86.6% if Exchangeable Notes are converted), allowing them to exert significant control over shareholder approval matters and potentially deterring acquisitions[483][484][486][488] - Issuance of additional ordinary shares, including from Exchangeable Notes or warrants, may dilute existing shareholders' ownership and voting power, or require relinquishing rights[489][490][491] - Sales of a substantial number of ordinary shares in the public market, or the perception of such sales, could cause the share price to fall, especially given the significant number of shares underlying outstanding warrants[492][493][494][495][496][498][499] - Irish law differs from U.S. laws, potentially affording less protection to security holders regarding enforcement of judgments, class actions, and director/officer duties[500][501][502][503] - Operating as a public company incurs increased costs and requires substantial management time for public reporting obligations and compliance with regulations like Sarbanes-Oxley Act and JOBS Act[504][506] - Failure to maintain an effective system of disclosure controls and internal control over financial reporting could impair timely and accurate financial statements, harm results, and negatively affect share price[509][510][512] - The company has never paid cash dividends and does not anticipate doing so, with ability to pay dividends or repurchase shares limited by Irish law and debt covenants[513][514] - Anti-takeover provisions in Articles of Association and Irish law (Takeover Rules) could make an acquisition more difficult, limit shareholder influence, and affect share price[515][516][517][518][519][520][521][522][523] - Irish law requires shareholder approval for certain capital structure decisions (e.g., share issuance, preemption rights disapplication) every five years, potentially limiting flexibility[524] - The company could be subject to securities class action litigation, which is costly and diverts management resources[525] Item 2. Recent Sales of Unregistered Securities This section details the company's recent sales of unregistered warrants to institutional investors and placement agent designees, exempt under Section 4(a)(2) of the Securities Act - On June 3, 2020, the company issued warrants to purchase up to 1,485,885 ordinary shares to institutional investors (exercise price $1.62, expiry December 5, 2025) and 208,023 ordinary shares to placement agent designees (exercise price $2.1031, expiry June 3, 2025)[527] - These sales were exempt from registration under Section 4(a)(2) of the Securities Act (or Regulation D) as they did not involve a public offering and were made without general solicitation or advertising[527] Item 6. Exhibits This section lists all exhibits filed or furnished as part of this Quarterly Report on Form 10-Q, including organizational documents, warrant forms, and certifications - Exhibits include the Amended and Restated Constitution, various forms of warrants issued in June 2020, Securities Purchase Agreements from June 3 and June 30, 2020, certifications from the Principal Executive and Financial Officers, and XBRL instance and taxonomy documents[529] Signatures Report Signatures This section contains the official signatures of the registrant's President and Chief Executive Officer, Corey Fishman, and Chief Financial Officer, Judith Matthews, certifying the report on August 6, 2020 - The report was signed on August 6, 2020, by Corey Fishman, President and Chief Executive Officer, and Judith Matthews, Chief Financial Officer, pursuant to the requirements of the Securities Exchange Act of 1934[532][533][534]