Iterum Therapeutics(ITRM) - 2023 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) The unaudited condensed consolidated financial statements detail the company's financial position, performance, and cash flows, supported by comprehensive notes Condensed Consolidated Balance Sheets Total assets decreased to $58.1 million due to a reduction in cash and investments, while total shareholders' equity also declined significantly Balance Sheet Highlights | Metric | March 31, 2023 (in thousands) | December 31, 2022 (in thousands) | | :-------------------------------- | :------------------------------ | :------------------------------- | | Cash and cash equivalents | $16,831 | $21,092 | | Short-term investments | $34,992 | $39,712 | | Total current assets | $54,246 | $62,444 | | Total assets | $58,120 | $66,833 | | Total current liabilities | $7,797 | $9,064 | | Total liabilities | $39,163 | $38,834 | | Total shareholders' equity | $18,957 | $27,999 | Condensed Consolidated Statements of Operations and Comprehensive Loss The company's net loss increased to $9.9 million in Q1 2023, driven by higher R&D expenses and unfavorable fair value adjustments of derivatives Statement of Operations Highlights | Metric | Three Months Ended March 31, 2023 (in thousands) | Three Months Ended March 31, 2022 (in thousands) | | :------------------------------------------ | :----------------------------------------------- | :----------------------------------------------- | | Research and development | $(6,432) | $(3,440) | | General and administrative | $(2,098) | $(3,933) | | Total operating expenses | $(8,530) | $(7,373) | | Operating loss | $(8,530) | $(7,373) | | Interest expense, net | $(399) | $(1,039) | | Adjustments to fair value of derivatives | $(878) | $5,177 | | Other income, net | $41 | $162 | | Total other (expense) / income | $(1,236) | $4,300 | | Loss before income taxes | $(9,766) | $(3,073) | | Income tax expense | $(123) | $(427) | | Net loss | $(9,889) | $(3,500) | | Net loss per share – basic and diluted | $(0.78) | $(0.29) | | Weighted average ordinary shares outstanding – basic and diluted | 12,681,900 | 12,193,435 | Condensed Consolidated Statements of Cash Flows Cash used in operations increased significantly, while cash from investing activities decreased, resulting in a net decrease in cash for Q1 2023 Cash Flow Summary | Metric | Three Months Ended March 31, 2023 (in thousands) | Three Months Ended March 31, 2022 (in thousands) | | :------------------------------------------ | :----------------------------------------------- | :----------------------------------------------- | | Net cash used in operating activities | $(9,590) | $(3,405) | | Net cash provided by investing activities | $5,106 | $9,593 | | Net cash provided by / (used in) financing activities | $235 | $(2,251) | | Net (decrease) / increase in cash, cash equivalents and restricted cash | $(4,261) | $3,915 | | Cash, cash equivalents and restricted cash, at end of period | $16,865 | $31,425 | Condensed Consolidated Statements of Stockholders' Equity Total shareholders' equity decreased from $28.0 million to $19.0 million, primarily due to the net loss incurred during the quarter Changes in Shareholders' Equity | Metric | Balance at Dec 31, 2022 (in thousands) | Issuance of ordinary shares, net (in thousands) | Share-based compensation expense (in thousands) | Net loss (in thousands) | Unrealized gain on available-for-sale securities (in thousands) | Balance at Mar 31, 2023 (in thousands) | | :--------------------------------- | :------------------------------------- | :---------------------------------------------- | :---------------------------------------------- | :---------------------- | :---------------------------------------------------- | :------------------------------------- | | Ordinary Shares (Amount) | $126 | $2 | — | — | — | $128 | | Additional paid-in capital | $451,150 | $233 | $393 | — | — | $451,776 | | Accumulated deficit | $(422,927) | — | — | $(9,889) | — | $(432,816) | | Accumulated other comprehensive loss | $(350) | — | — | — | $219 | $(131) | | Total shareholders' equity | $27,999 | $235 | $393 | $(9,889) | $219 | $18,957 | Notes to Unaudited Condensed Consolidated Financial Statements Detailed disclosures cover the company's business, accounting policies, fair value measurements, debt, equity, and other financial statement components Note 1. Basis of Presentation The company is a clinical-stage pharmaceutical firm with significant historical losses, and its current capital is expected to fund operations until mid-2024 - Iterum Therapeutics plc is a clinical-stage pharmaceutical company developing sulopenem, a novel anti-infective compound[24] - The company has incurred operating losses since inception, with a net loss of $9.889 million for the three months ended March 31, 2023, and an accumulated deficit of $432.816 million as of March 31, 2023[30] - Management believes existing cash and short-term investments ($51.823 million as of March 31, 2023) are sufficient to fund operations until mid-2024[30] Note 2. Summary of Significant Accounting Policies Financial statements are prepared under GAAP with no material policy changes, and key estimates involve share-based compensation and derivative liabilities - No material changes in significant accounting policies, except for the adoption of ASU 2016-13 (Financial Instruments - Credit Losses), which is not expected to materially impact financial statements[33][46] - Significant estimates include valuation of share-based compensation awards, Royalty-Linked Notes (RLNs), and derivative liabilities (embedded features in Exchangeable Notes)[34] Note 3. Fair Value of Financial Assets and Liabilities Derivative liabilities and Royalty-Linked Notes are classified as Level 3, with fair values determined by binomial option pricing and DCF analysis Level 3 Liabilities Fair Value | Liabilities (in thousands) | March 31, 2023 | December 31, 2022 | | :------------------------------------------------ | :--------------- | :---------------- | | Derivative liability - exchange option and change of control | $187 | $196 | | Royalty-linked notes | $19,258 | $18,372 | | Total Level 3 Liabilities | $19,445 | $18,568 | - The fair value of the exchange option at March 31, 2023, was $63 thousand, and the change of control feature was $124 thousand[50][51] - The fair value of Royalty-Linked Notes (RLNs) was $19.258 million at March 31, 2023, determined using DCF analysis with a 22% discount rate[55] Note 4. Short-term Investments Available-for-sale short-term investments decreased to $35.0 million and consist of corporate bonds, commercial paper, and U.S. Treasury bonds Short-term Investment Portfolio | Security Type (in thousands) | March 31, 2023 Fair Value | December 31, 2022 Fair Value | | :------------------------- | :------------------------ | :--------------------------- | | Corporate bonds | $6,324 | $7,781 | | Commercial paper | $13,786 | $15,232 | | U.S. Treasury bonds | $14,882 | $16,699 | | Total | $34,992 | $39,712 | - Short-term investments have a weighted average maturity of 0.2 years as of March 31, 2023[57] Note 5. Prepaid Expenses and Other Current Assets Prepaid expenses and other current assets increased to $2.2 million, primarily due to a significant rise in prepaid R&D expenses Prepaid Expenses Breakdown | Category (in thousands) | March 31, 2023 | December 31, 2022 | | :-------------------------------- | :--------------- | :---------------- | | Prepaid research and development expenses | $1,581 | $458 | | Prepaid insurance | $246 | $592 | | Research and development tax credit receivable | $120 | $118 | | Other prepaid assets | $288 | $170 | | Total | $2,235 | $1,338 | Note 6. Intangible Asset, net Net intangible assets decreased to $1.3 million due to ongoing amortization of a reservation right for a tableting facility Intangible Asset Details | Metric (in thousands) | March 31, 2023 | December 31, 2022 | | :-------------------- | :--------------- | :---------------- | | Gross intangible asset | $5,148 | $5,148 | | Less: accumulated amortization | $(3,858) | $(3,429) | | Net intangible asset | $1,290 | $1,719 | Note 7. Property and Equipment, net Net property and equipment decreased slightly to $62 thousand, reflecting ongoing depreciation Property and Equipment Details | Metric (in thousands) | March 31, 2023 | December 31, 2022 | | :-------------------- | :--------------- | :---------------- | | Total gross property and equipment | $353 | $353 | | Less: accumulated depreciation | $(291) | $(284) | | Net property and equipment | $62 | $69 | Note 8. Leases The company holds operating leases for office space with total lease liabilities of $1.6 million as of March 31, 2023 Lease Costs | Metric (in thousands) | March 31, 2023 | March 31, 2022 | | :-------------------------------- | :--------------- | :--------------- | | Operating lease costs | $106 | $146 | | Rental expense on short-term leases | $72 | $33 | | Sublease income | $76 | $76 | Lease Liabilities and Terms | Metric (in thousands) | March 31, 2023 | December 31, 2022 | | :-------------------- | :--------------- | :---------------- | | Total lease liabilities | $1,572 | $1,636 | | Weighted-average remaining lease term | 4.82 years | 5.04 years | | Weighted-average discount rate | 5.5% | 5.5% | Note 9. Accrued Expenses Accrued expenses decreased to $3.6 million, driven by lower accrued payroll and professional fees, despite higher accrued clinical trial costs Accrued Expenses Breakdown | Category (in thousands) | March 31, 2023 | December 31, 2022 | | :-------------------------------- | :--------------- | :---------------- | | Accrued clinical trial costs | $2,262 | $1,549 | | Accrued payroll and bonus expenses | $881 | $1,971 | | Accrued professional fees | $136 | $606 | | Accrued other expenses | $320 | $220 | | Total | $3,599 | $4,346 | Note 10. Debt The SVB credit facility and PPP loan were fully repaid in 2022, leaving $12.6 million in Exchangeable Notes outstanding as of March 31, 2023 - The secured credit facility with SVB and the PPP loan were fully repaid in March 2022[70][83] - Since January 21, 2021, $39.201 million aggregate principal amount of Exchangeable Notes have been exchanged for 3,592,555 ordinary shares[76] Exchangeable Notes Summary | Metric (in thousands) | March 31, 2023 | | :------------------------------------------------ | :--------------- | | Aggregate principal amount of Exchangeable Notes outstanding | $12,607 | | Unamortized discount and debt issuance costs | $(4,315) | | 2025 Exchangeable Notes, net | $8,292 | | Accrued Interest | $2,585 | Note 11. Royalty-Linked Notes The fair value of the Royalty-Linked Notes liability increased to $19.3 million, reflecting payments contingent on future sulopenem revenues - RLNs entitle holders to payments based on a percentage of U.S. net revenues from specified sulopenem products, with a maximum return of $160 per RLN[85] Royalty-Linked Notes Liability | Metric (in thousands) | March 31, 2023 | December 31, 2022 | | :------------------------------------------ | :--------------- | :---------------- | | Total liability related to the sale of future royalties | $19,258 | $18,372 | Note 12. Shareholders' Equity Authorized shares increased, but the failure to renew preemption rights disapplication limits the company's ability to issue new shares for cash - Shareholders approved an increase of 60,000,000 ordinary shares to the authorized share capital at the May 3, 2023 Annual General Meeting[129] - The proposal to renew the disapplication of statutory pre-emption rights did not receive the required 75% vote, limiting the company's ability to issue new shares for cash without a pro-rata offering to existing shareholders until January 26, 2026[129][158] - During Q1 2023, the company sold 184,094 ordinary shares under an "at-the-market" agreement for net proceeds of $0.2 million[92] Note 13. Share-Based Compensation Share-based compensation expense decreased significantly to $393 thousand in Q1 2023, with $1.7 million in unamortized expense remaining Share-Based Compensation Expense | Metric (in thousands) | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :-------------------------------- | :-------------------------------- | :-------------------------------- | | Total share-based compensation expense | $393 | $1,895 | | Research and development expense | $124 | $526 | | General and administrative expense | $269 | $1,369 | - Total unamortized share-based compensation expense for options and RSUs was $1.654 million as of March 31, 2023, expected to be recognized over a remaining weighted average vesting period of 2.79 years[118] Note 14. Income Taxes The company recorded a $123 thousand income tax expense for Q1 2023 and maintains a full valuation allowance against its net operating loss carryforwards Income Tax Expense | Metric (in thousands) | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :-------------------- | :-------------------------------- | :-------------------------------- | | Income tax expense | $123 | $427 | - As of March 31, 2023, the company has net operating loss carryforwards in Ireland of approximately $37.123 million, for which a full valuation allowance has been recognized[120] Note 15. Commitments and Contingencies The company has future milestone and royalty obligations to Pfizer, and a class action lawsuit was dismissed with prejudice in January 2023 - The company is obligated to pay Pfizer potential future regulatory and sales milestone payments, and royalties ranging from single-digit to mid-teens percentage based on net sales of licensed sulopenem products[122] - A putative class action lawsuit filed in August 2021 alleging securities law violations was dismissed with prejudice on January 25, 2023[124] Note 16. Condensed Consolidating Financial Statements A subsidiary issued debt fully guaranteed by the parent company and other subsidiaries, with no significant restrictions on intercompany fund transfers - Iterum Bermuda, a wholly-owned finance subsidiary, issued Exchangeable Notes and Royalty-Linked Notes, which are fully and unconditionally guaranteed by Iterum Therapeutics plc and its other subsidiaries[127][128] Note 17. Subsequent Events Post-quarter end, shareholders authorized more shares but did not approve a resolution that would have provided greater flexibility for future share issuances - On May 3, 2023, shareholders authorized an additional 60,000,000 ordinary shares[129] - The special resolution to renew the disapplication of statutory preemption rights did not receive the required 75% vote, limiting the company's ability to issue new shares for cash without a pro-rata offering[129] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's financial results, liquidity, and capital resources, focusing on the ongoing REASSURE trial and future funding needs Overview Iterum is a clinical-stage company developing sulopenem and is conducting the REASSURE trial following an FDA CRL, expecting continued operating losses - Iterum Therapeutics is a clinical-stage pharmaceutical company focused on developing sulopenem as a potential first oral and global IV branded penem for drug-resistant bacterial infections[131] - The company is conducting a Phase 3 clinical trial (REASSURE) for oral sulopenem in uUTIs, initiated in October 2022, in response to a July 2021 FDA Complete Response Letter (CRL)[132] - The company has incurred significant operating losses since inception, with an accumulated deficit of $432.8 million as of March 31, 2023, and expects to continue incurring losses[133] Components of Our Results of Operations Financial results are primarily driven by R&D expenses for clinical trials and G&A expenses for personnel and professional fees Research and Development Expenses R&D expenses, which are expensed as incurred, include costs for CROs, CMOs, clinical trials, manufacturing, and personnel - R&D expenses include costs for CROs, CMOs, clinical trials, manufacturing, employee-related expenses, regulatory compliance, and third-party licensing payments[138] - The successful development and commercialization of sulopenem is highly uncertain, making it difficult to estimate future R&D costs or timing of revenue[139] General and Administrative Expenses G&A expenses consist of personnel costs, professional fees, and pre-commercial activities, which were halted to conserve cash after the CRL - G&A expenses include personnel costs (salaries, benefits, share-based compensation) for executive, finance, and administrative functions, as well as professional fees and pre-commercialization activities[141][142] - Pre-commercial activities for oral sulopenem were halted in Q3 2021 to reduce operating expenses and conserve cash following the CRL[143] Interest Expense, Net Net interest expense includes accrued interest on notes, amortization of debt costs, and interest earned on cash and investments - Interest expense, net, includes accrued interest and amortization of debt costs for Exchangeable Notes and Royalty-Linked Notes, as well as gains/losses on short-term investments and interest on cash[144] - Interest on Exchangeable Notes is not payable until maturity unless exchanged prior to maturity[144] Adjustments to Fair Value of Derivatives Derivative liabilities are revalued each period, with changes in fair value recorded in the consolidated statements of operations - Derivative liabilities (embedded features in Exchangeable Notes and RLNs) are revalued each reporting period, with changes in fair value recorded in the consolidated statements of operations[145] Other Income, Net Other income primarily consists of foreign currency gains or losses and sub-lease income - Other income, net, includes realized and unrealized foreign currency gains/losses and sub-lease income[146] Provision for Income Taxes A valuation allowance is maintained against deferred tax assets due to the uncertainty of realizing net operating loss carryforwards - Income taxes are recognized using the asset and liability method, with deferred taxes based on temporary differences[147] - A valuation allowance is provided against deferred tax assets when their realization is not more-likely-than-not, due to the company's history of losses[148] Critical Accounting Policies and Significant Judgments and Estimates The company's critical accounting policies and significant judgments, as disclosed in its Form 10-K, remain unchanged - Critical accounting policies and significant judgments and estimates, as described in the Annual Report on Form 10-K, remain unchanged[149] Results of Operations This section compares operating results for Q1 2023 and Q1 2022, detailing changes in R&D, G&A, and other income/expense items Comparison of the three months ended March 31, 2023 and 2022 The operating loss increased due to higher R&D, while a negative swing in fair value adjustments drove a larger loss before taxes Operating Results Summary | Metric (in thousands) | March 31, 2023 | March 31, 2022 | Change | | :-------------------------------- | :--------------- | :--------------- | :------- | | Operating loss | $(8,530) | $(7,373) | $(1,157) | | Total other (expense) / income, net | $(1,236) | $4,300 | $(5,536) | | Loss before income taxes | $(9,766) | $(3,073) | $(6,693) | Research and Development Expenses (detailed breakdown) R&D expenses rose by $3.0 million, driven by a $3.5 million increase in CRO and clinical trial costs for the REASSURE trial R&D Expense Breakdown | Category (in thousands) | March 31, 2023 | March 31, 2022 | Change | | :------------------------------------ | :--------------- | :--------------- | :------- | | CRO and other preclinical and clinical trial expenses | $4,516 | $1,053 | $3,463 | | Personnel related (including share-based compensation) | $973 | $1,406 | $(433) | | Chemistry, manufacturing and control (CMC) related expenses | $660 | $588 | $72 | | Consulting fees | $283 | $393 | $(110) | | Total research and development expenses | $6,432 | $3,440 | $2,992 | General and Administrative Expenses (detailed breakdown) G&A expenses fell by $1.8 million, primarily due to a $1.2 million reduction in personnel costs from lower share-based compensation G&A Expense Breakdown | Category (in thousands) | March 31, 2023 | March 31, 2022 | Change | | :------------------------------------ | :--------------- | :--------------- | :------- | | Personnel related (including share-based compensation) | $956 | $2,196 | $(1,240) | | Facility related and other | $750 | $973 | $(223) | | Professional and consulting fees | $392 | $764 | $(372) | | Total general and administrative expenses | $2,098 | $3,933 | $(1,835) | Total Other Income / (Expense), net (detailed breakdown) Total other income shifted to an expense, a negative change of $5.5 million, driven by a $6.1 million negative swing in derivative fair value adjustments Other Income/(Expense) Breakdown | Metric (in thousands) | March 31, 2023 | March 31, 2022 | Change | | :------------------------------------ | :--------------- | :--------------- | :------- | | Interest expense, net | $(399) | $(1,039) | $640 | | Adjustments to fair value of derivatives | $(878) | $5,177 | $(6,055) | | Other income, net | $41 | $162 | $(121) | | Total other (expense) / income, net | $(1,236) | $4,300 | $(5,536) | Interest Expense, Net (detailed explanation) Net interest expense decreased by $0.6 million due to higher interest income and lower unrealized losses on investments - Interest expense, net, decreased by $0.6 million in Q1 2023 due to higher interest income on short-term investments and lower unrealized losses[154] Adjustments to Fair Value of Derivatives (detailed explanation) A $0.9 million expense was recorded in Q1 2023 from an increase in RLN fair value, contrasting with a $5.2 million income in Q1 2022 - Adjustments to fair value of derivatives resulted in a $0.9 million expense in Q1 2023, primarily from an increase in RLN fair value due to passage of time[155] - In Q1 2022, this was a $5.2 million income, driven by a decrease in the value of derivative components of Exchangeable Notes (due to share price/market cap decrease) and RLNs (due to changes in expected payment timing)[155] Other Income, Net (detailed explanation) Other income decreased by $0.1 million in Q1 2023, mainly due to an increase in foreign currency losses - Other income, net, decreased by $0.1 million in Q1 2023, primarily due to increased foreign currency losses[156] Liquidity and Capital Resources With $51.8 million in cash and investments, the company is funded until mid-2024 but faces substantial future funding needs and limited equity issuance flexibility - As of March 31, 2023, cash, cash equivalents, and short-term investments totaled $51.8 million, estimated to fund operations until mid-2024[161][182] - The company's shareholders did not approve the disapplication of statutory pre-emption rights at the 2023 Annual Meeting, limiting the ability to issue new ordinary shares for cash without a pro-rata offering to existing shareholders[157][158] - Future funding requirements are substantial and depend on clinical trial outcomes, regulatory approvals, commercialization efforts, and potential acquisitions[185] Cash Flows Operating cash burn increased to $9.6 million, while financing activities provided a small inflow from share sales, unlike the prior year's debt repayment outflow Quarterly Cash Flow Comparison | Cash Flow Activity (in thousands) | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :------------------------------------ | :-------------------------------- | :-------------------------------- | | Net cash used in operating activities | $(9,590) | $(3,405) | | Net cash provided by investing activities | $5,106 | $9,593 | | Net cash provided by / (used in) financing activities | $235 | $(2,251) | Funding Requirements The company requires significant additional capital to fund the REASSURE trial, regulatory submissions, and potential commercialization beyond mid-2024 - Significant expenses are expected for clinical trials (REASSURE), regulatory approvals, and commercialization activities[184] - Funding beyond mid-2024 requires additional capital through equity offerings, debt financings, collaboration agreements, or government funding, which may involve dilution or restrictive covenants[186] Contractual Obligations and Commitments Key obligations include potential milestone and royalty payments to Pfizer, payments to RLN holders, and $1.7 million in operating lease commitments - Obligations include potential regulatory and sales milestone payments and royalties to Pfizer under the Pfizer License[187] - Royalty-Linked Notes (RLNs) entitle holders to payments based on a percentage of U.S. net revenues from specified sulopenem products, capped at $160 per RLN[188] Lease Payment Obligations | Lease Payments (in thousands) | Amount | | :---------------------------- | :----- | | Due in 12 month period ended March 31, 2024 | $412 | | Total lease liabilities | $1,572 | Emerging Growth Company Status The company is an "emerging growth company" and "smaller reporting company" but has opted out of the extended transition period for new accounting standards - The company is an "emerging growth company" and has irrevocably opted out of the extended transition period for new accounting standards[190] - The company also qualifies as a "smaller reporting company," allowing for reduced disclosure requirements[506] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company is exposed to interest rate risk on its investments, foreign currency risk from global contracts, and inflation risk on operating costs - The company holds $51.8 million in cash, cash equivalents, and short-term investments, exposed to interest rate risk. A 100 basis point interest rate increase would decrease fair value by $0.1 million[191] - Exposed to foreign currency rate fluctuations from global CRO/CMO contracts, but realized net foreign currency gains and losses were not material for Q1 2023[192] - Inflation could increase labor and R&D costs, though it has not had a material effect on financial statements to date[193] Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective as of March 31, 2023, with no material changes in internal controls - As of March 31, 2023, disclosure controls and procedures were evaluated as effective at the reasonable assurance level[194] - No material changes in internal control over financial reporting occurred during the three months ended March 31, 2023[195] PART II. OTHER INFORMATION Item 1. Legal Proceedings A class action lawsuit alleging securities law violations was dismissed with prejudice on January 25, 2023 - A class action lawsuit filed in August 2021 alleging securities law violations was dismissed with prejudice on January 25, 2023, after plaintiffs failed to file an amended complaint[197] Item 1A. Risk Factors The company faces material risks related to its financial position, clinical development, third-party dependence, intellectual property, and regulatory compliance Risks Related to Our Financial Position and Capital Requirements The company has a history of significant losses, expects them to continue, and requires additional financing beyond mid-2024 to sustain operations - The company has incurred net losses since inception, with an accumulated deficit of $432.8 million as of March 31, 2023[199] - Existing cash, cash equivalents, and short-term investments ($51.8 million as of March 31, 2023) are estimated to fund operations until mid-2024[199][206] - Failure to obtain additional financing or limitations on share issuance due to unapproved pre-emption rights could force delays or termination of product development[205][208][209] Risks Related to Clinical Development and Commercialization Success hinges on the highly uncertain regulatory approval and commercialization of sulopenem, which faces clinical, competitive, and reimbursement hurdles - The company's prospects depend entirely on the successful development and commercialization of its sulopenem program, which faces significant uncertainty due to the FDA's CRL and the ongoing REASSURE Phase 3 trial[216][217][245][247] - The company has no prior experience in obtaining regulatory approval for a drug, and clinical trials are expensive, lengthy, and uncertain[249] - Market acceptance of any approved product is not guaranteed, facing competition from existing therapies and potential new entrants, and subject to complex pricing and reimbursement policies[277][289][290][296] Risks Related to Our Dependence on Third Parties The company relies heavily on the Pfizer License for its core IP and on third-party CROs and CMOs for development and manufacturing - Heavy reliance on the Pfizer License for sulopenem's intellectual property; failure to comply with obligations could lead to license termination[309][312][335] - Dependence on third-party CROs and CMOs for preclinical studies, clinical trials, and manufacturing introduces risks of delays, non-compliance, and increased costs[320][326][329] Risks Related to Our Intellectual Property Protection for sulopenem relies on in-licensed patents with varying expiration dates and is subject to costly prosecution, potential litigation, and global legal complexities - Intellectual property protection for sulopenem relies on in-licensed patents (composition of bilayer tablet expires no earlier than 2039, method of use expires 2029, subject to extensions) and trade secrets[338][339][346] - Patent prosecution is expensive and uncertain; third parties may challenge validity or scope, or assert infringement claims, leading to costly litigation and potential loss of rights[339][341][358][362] - Global IP protection is challenging due to varying laws and enforcement, with new systems like the Unitary Patent Court in Europe adding uncertainty[368][370] Risks Related to Regulatory Approval and Other Legal Compliance Matters Regulatory approval for sulopenem is uncertain and subject to delays, and the company faces complex ongoing compliance and healthcare reform risks post-approval - Obtaining regulatory approval for sulopenem is uncertain and subject to significant delays, as demonstrated by the FDA's CRL and the need for additional clinical trials (REASSURE)[384][386] - Post-approval, the company will face ongoing regulatory requirements, potential restrictions, and penalties for non-compliance[402][404] - Relationships with healthcare providers are subject to complex anti-kickback, fraud, and other healthcare laws, with potential for significant penalties for non-compliance[407][408][410] - Healthcare legislative reforms (e.g., ACA, IRA) could lead to reduced reimbursement, increased pricing pressures, and new regulatory requirements[413][423][426] Risks Related to Employee Matters and Managing Growth Success depends on retaining key personnel in a competitive market and effectively managing potential growth without straining resources or management focus - Future success depends on retaining key executives and attracting qualified personnel in a competitive industry with high turnover[449][450] - Managing potential growth in employees and operations (e.g., manufacturing, sales) could divert management attention and strain resources[451][452] Risks Related to Taxation The company's potential PFIC status could create adverse tax consequences for U.S. shareholders, who may also face Irish stamp duty and dividend withholding tax - The company was a PFIC in 2017 and could be in the future, potentially leading to adverse U.S. federal income tax consequences for U.S. Holders[458][461] - Transfers of ordinary shares not through DTC may be subject to Irish stamp duty (1% of higher of price paid or market value)[467] - Dividends may be subject to Irish dividend withholding tax (25%), with limited U.S. creditability for U.S. Holders[468] Risks Related to Our Ordinary Shares The company's shares have experienced high volatility, and risks of delisting, shareholder dilution, and unfavorable Irish corporate laws persist - The company's ordinary shares have experienced high volatility, with prices ranging from $0.705 to $5.055 in the past 12 months, and an active trading market may not be sustained[473] - Failure to comply with Nasdaq Capital Market listing requirements (e.g., minimum bid price, market value of publicly held shares) could lead to delisting, impacting liquidity and triggering debt default[478][480] - Issuance of additional ordinary shares (e.g., from Exchangeable Notes, warrants, equity offerings) may dilute existing shareholders' ownership and voting power[489][490][491] - Irish law differs from U.S. law, potentially affording less protection to shareholders and limiting the board's ability to control hostile takeovers[499][502][517] Item 6. Exhibits This section lists the exhibits filed with the report, including officer certifications and Inline XBRL documents - The section lists exhibits filed with the 10-Q, including certifications (31.1, 31.2, 32.1, 32.2) and Inline XBRL documents (101.INS, 101.SCH, 101.CAL, 101.DEF, 101.LAB, 101.PRE, 104)[524] Signatures The report is certified and signed by the CEO and CFO as of May 12, 2023 - The report is signed by Corey Fishman (President and CEO) and Judith Matthews (CFO) on May 12, 2023[528]