Iterum Therapeutics(ITRM) - 2023 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION This section presents the unaudited condensed consolidated financial statements and related notes for Iterum Therapeutics plc Item 1. Financial Statements (Unaudited) This section presents the unaudited condensed consolidated financial statements for Iterum Therapeutics plc, including the balance sheets, statements of operations and comprehensive loss, statements of cash flows, and statements of stockholders' equity, along with detailed notes explaining the basis of presentation, significant accounting policies, fair value measurements, debt, equity, and other financial commitments Condensed Consolidated Balance Sheets This section provides a snapshot of the company's assets, liabilities, and equity at specific points in time | Metric | June 30, 2023 (in thousands) | December 31, 2022 (in thousands) | | :-------------------------------- | :----------------------------- | :------------------------------- | | Cash and cash equivalents | $13,734 | $21,092 | | Short-term investments | $30,998 | $39,712 | | Total current assets | $47,653 | $62,444 | | Total assets | $51,021 | $66,833 | | Total current liabilities | $10,829 | $9,064 | | Total liabilities | $43,892 | $38,834 | | Total shareholders' equity | $7,129 | $27,999 | - Total assets decreased from $66.8 million at December 31, 2022, to $51.0 million at June 30, 2023, primarily due to a reduction in cash, cash equivalents, and short-term investments[15] - Shareholders' equity significantly decreased from $28.0 million at December 31, 2022, to $7.1 million at June 30, 2023[15] Condensed Consolidated Statements of Operations and Comprehensive Loss This section details the company's revenues, expenses, and net loss over specific reporting periods | Metric (in thousands) | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :-------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Research and development | $(8,964) | $(3,984) | $(15,396) | $(7,424) | | General and administrative | $(1,858) | $(4,066) | $(3,956) | $(7,999) | | Total operating expenses | $(10,822) | $(8,050) | $(19,352) | $(15,423) | | Operating loss | $(10,822) | $(8,050) | $(19,352) | $(15,423) | | Net loss | $(12,243) | $(6,735) | $(22,132) | $(10,235) | | Net loss per share | $(0.95) | $(0.55) | $(1.73) | $(0.84) | - Net loss for the three months ended June 30, 2023, increased to $12.2 million from $6.7 million in the prior year, driven by higher R&D expenses and negative adjustments to fair value of derivatives[17] - For the six months ended June 30, 2023, net loss more than doubled to $22.1 million from $10.2 million in the same period last year, primarily due to increased R&D expenses related to the REASSURE trial and negative fair value adjustments[17] Condensed Consolidated Statements of Cash Flows This section outlines the company's cash inflows and outflows from operating, investing, and financing activities | Metric (in thousands) | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :-------------------- | :----------------------------- | :----------------------------- | | Net cash used in operating activities | $(17,222) | $(9,669) | | Net cash provided by (used in) investing activities | $9,453 | $(6,268) | | Net cash provided by (used in) financing activities | $435 | $(2,251) | | Net (decrease) / increase in cash, cash equivalents and restricted cash | $(7,358) | $(18,237) | | Cash, cash equivalents and restricted cash, at end of period | $13,768 | $9,273 | - Net cash used in operating activities increased to $17.2 million for the six months ended June 30, 2023, from $9.7 million in the prior year, reflecting higher net losses[20] - Investing activities provided $9.5 million in cash for the six months ended June 30, 2023, primarily from the sale of short-term investments, a significant shift from $6.3 million used in the prior year[20] Condensed Consolidated Statements of Stockholders' Equity This section presents changes in the company's equity accounts, including ordinary shares and accumulated deficit | Metric (in thousands) | Balance at December 31, 2022 | Issuance of ordinary shares, net | Share-based compensation expense | Net loss | Unrealized gain on available-for-sale securities | Balance at June 30, 2023 | | :-------------------- | :--------------------------- | :------------------------------- | :------------------------------- | :------- | :--------------------------------------------- | :----------------------- | | Ordinary Shares (Amount) | $126 | $4 | — | — | — | $130 | | Additional Paid-in Capital | $451,150 | $431 | $503 | — | — | $452,084 | | Accumulated Deficit | $(422,927) | — | — | $(22,132) | — | $(445,059) | | Accumulated Other Comprehensive Loss | $(350) | — | — | — | $324 | $(26) | | Total Shareholders' Equity | $27,999 | $435 | $503 | $(22,132) | $324 | $7,129 | - Total shareholders' equity decreased from $27.9 million at December 31, 2022, to $7.1 million at June 30, 2023, primarily due to a net loss of $22.1 million[23] - The company issued ordinary shares resulting in $0.4 million in net proceeds and recognized $0.5 million in share-based compensation expense during the six months ended June 30, 2023[23] Notes to Unaudited Condensed Consolidated Financial Statements This section provides detailed explanations and disclosures supporting the unaudited condensed consolidated financial statements 1. Basis of Presentation Iterum Therapeutics plc is a clinical-stage pharmaceutical company focused on developing sulopenem, a novel anti-infective compound, for potential use as the first oral penem in the U.S. and the first oral and IV branded penem globally. The company has incurred significant operating losses since inception and relies on external funding, with current cash and short-term investments expected to fund operations for at least one year. Management is evaluating strategic alternatives to maximize stakeholder value - Iterum Therapeutics plc is a clinical-stage pharmaceutical company developing sulopenem, a novel anti-infective compound, aiming to be the first oral penem in the U.S. and the first oral and IV branded penem globally[24] - The company has incurred operating losses since inception, with net losses of $22.1 million and $10.2 million for the six months ended June 30, 2023 and 2022, respectively, and an accumulated deficit of $445.1 million as of June 30, 2023[30] - Management believes existing cash and short-term investments ($13.7 million cash, $31.0 million short-term investments as of June 30, 2023) are sufficient to fund operations for at least one year from the filing date[30] - The company is evaluating corporate, strategic, financial, and financing alternatives to maximize stakeholder value, which may include licensing, sale of assets, a company sale, merger, or other strategic transactions[32] 2. Summary of Significant Accounting Policies This section outlines the company's significant accounting policies, including the use of estimates, classification of cash and cash equivalents, concentration of credit risk, net loss per ordinary share calculation, and segment reporting. It also details the adoption of ASU 2016-13 regarding credit losses, which is not expected to have a material impact - Significant estimates in financial statements include valuation of share-based compensation, royalty-linked notes (RLNs), and derivative liabilities (embedded features in Exchangeable Notes)[36] - Cash and cash equivalents include highly liquid investments with maturities of three months or less; restricted cash is held for warrants issued in prior offerings[38][39] - The company operates as a single business segment focused on developing and commercializing treatments for drug-resistant bacterial infections[43] - The adoption of ASU 2016-13 (Credit Losses) on January 1, 2023, is not expected to materially impact the company's financial position or results of operations[47] 3. Fair Value of Financial Assets and Liabilities The company's financial assets and liabilities are measured at fair value, categorized into Level 1, 2, or 3 inputs. Short-term investments (commercial paper, U.S. Treasury bonds) are Level 2. Exchangeable Notes are valued using DCF (Level 2), while derivative liabilities (exchange option, change of control premium) and Royalty-Linked Notes (RLNs) are Level 3, valued using binomial option pricing and DCF analysis, respectively, with key assumptions like share price, volatility, and discount rates | Asset/Liability (in thousands) | June 30, 2023 Total | Level 1 | Level 2 | Level 3 | | :----------------------------- | :------------------ | :------ | :------ | :------ | | Short-term investments | $30,998 | $— | $30,998 | $— | | Exchangeable Notes (Long-term) | $11,959 | $— | $11,959 | $— | | Derivative liability | $154 | $— | $— | $154 | | Royalty-linked notes | $20,251 | $— | $— | $20,251 | - Level 3 liabilities, including the embedded exchange option and change of control premium in Exchangeable Notes, and Royalty-Linked Notes (RLNs), are valued using binomial option pricing and DCF analysis, respectively[52][54][57] | Assumption | June 30, 2023 | December 31, 2022 | | :------------------- | :------------ | :---------------- | | Share price | $1.07 | $0.84 | | Volatility | 100% | 100% | | Risk-free interest rate | 5.14% | 4.46% | | RLN Discount rate | 22% | N/A | 4. Short-term Investments The company classifies its short-term investments as available-for-sale, consisting of highly liquid, minimum 'A-' rated commercial paper and U.S. Treasury bonds with maturities over three months. These are reported at fair value, with unrealized gains or losses recorded in comprehensive loss | Security Type (in thousands) | Amortized Cost (June 30, 2023) | Fair Value (June 30, 2023) | Amortized Cost (Dec 31, 2022) | Fair Value (Dec 31, 2022) | | :--------------------------- | :----------------------------- | :------------------------- | :---------------------------- | :------------------------ | | Commercial paper | $9,151 | $9,142 | $15,230 | $15,232 | | U.S. Treasury bonds | $21,875 | $21,856 | $16,996 | $16,699 | | Corporate bonds | — | — | $7,836 | $7,781 | | Total | $31,026 | $30,998 | $40,062 | $39,712 | - Short-term investments decreased from $39.7 million at December 31, 2022, to $31.0 million at June 30, 2023, with a shift from corporate bonds to U.S. Treasury bonds[61] - As of June 30, 2023, short-term investments had a weighted average maturity of 0.3 years[59] 5. Prepaid Expenses and Other Current Assets Prepaid expenses and other current assets increased significantly from $1.3 million at December 31, 2022, to $2.9 million at June 30, 2023, primarily driven by a rise in prepaid research and development expenses | Category (in thousands) | June 30, 2023 | December 31, 2022 | | :---------------------- | :------------ | :---------------- | | Prepaid R&D expenses | $1,610 | $458 | | Prepaid insurance | $971 | $592 | | Total | $2,914 | $1,338 | - Prepaid research and development expenses saw a substantial increase from $458 thousand to $1,610 thousand[62] 6. Intangible Asset, net The net intangible asset, primarily a reservation right for a tableting facility, decreased from $1.7 million at December 31, 2022, to $0.9 million at June 30, 2023, due to ongoing amortization over its three-year term | Metric (in thousands) | June 30, 2023 | December 31, 2022 | | :-------------------- | :------------ | :---------------- | | Gross intangible asset | $5,148 | $5,148 | | Less: accumulated amortization | $(4,287) | $(3,429) | | Intangible asset, net | $861 | $1,719 | - The intangible asset, a reservation right for a tableting facility, is being amortized over a three-year term from January 1, 2021, to December 31, 2023[63] 7. Property and Equipment, net Net property and equipment remained stable at $69 thousand from December 31, 2022, to June 30, 2023, with depreciation expense of $16 thousand for the six months ended June 30, 2023 | Category (in thousands) | June 30, 2023 | December 31, 2022 | | :---------------------- | :------------ | :---------------- | | Leasehold improvements | $148 | $148 | | Furniture and fixtures | $120 | $120 | | Computer equipment | $101 | $85 | | Less: accumulated depreciation | $(300) | $(284) |\ | Total | $69 | $69 | - Depreciation expense for the six months ended June 30, 2023, was $16 thousand[64] 8. Leases The company has operating leases for office and commercial property, with remaining terms ranging from 0.33 to 5.0 years. Operating lease costs for the six months ended June 30, 2023, were $214 thousand, with additional rental expense for short-term leases of $145 thousand and sublease income of $151 thousand | Metric (in thousands) | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :-------------------- | :----------------------------- | :----------------------------- | | Operating lease costs | $214 | $410 | | Rental expense (short-term leases) | $145 | $121 | | Sublease income | $151 | $148 | | Lease Liability (in thousands) | June 30, 2023 | December 31, 2022 | | :----------------------------- | :------------ | :---------------- | | Other current liabilities | $348 | $332 | | Other liabilities | $1,146 | $1,304 | | Total lease liabilities | $1,494 | $1,636 | - Future lease payments total $1,648 thousand, with $414 thousand due in the next 12 months[68] 9. Accrued Expenses Accrued expenses increased from $4.3 million at December 31, 2022, to $5.2 million at June 30, 2023, primarily due to a significant rise in accrued clinical trial costs | Category (in thousands) | June 30, 2023 | December 31, 2022 | | :---------------------- | :------------ | :---------------- | | Accrued clinical trial costs | $3,471 | $1,549 | | Accrued payroll and bonus expenses | $1,407 | $1,971 | | Accrued professional fees | $99 | $606 | | Total | $5,171 | $4,346 | - Accrued clinical trial costs nearly doubled, reflecting increased activity[69] 10. Debt This section details the company's debt obligations, including the fully repaid Secured Credit Facility with SVB and the 2025 Exchangeable Notes. As of June 30, 2023, $12.6 million in Exchangeable Notes remained outstanding, with $39.2 million having been exchanged for ordinary shares since January 2021. The PPP loan was also fully repaid in March 2022 - The Secured Credit Facility with Silicon Valley Bank (SVB) was fully repaid on March 1, 2022, including a $0.6 million final interest payment[71] - The company issued warrants to SVB and LSF in connection with the initial $15.0 million draw, exercisable at $282.75 per share, expiring April 27, 2028[72] - As of June 30, 2023, $12.6 million aggregate principal amount of 2025 Exchangeable Notes remained outstanding, with $39.2 million having been exchanged for 3,592,555 ordinary shares since January 2021[77][83] - The embedded exchange option and change of control feature in the Exchangeable Notes are accounted for as a derivative liability, revalued each reporting period[79] - The Paycheck Protection Program (PPP) loan of $0.7 million was fully repaid on March 17, 2022, after $0.3 million was forgiven in November 2020[84] | Year Ending June 30, | Scheduled Principal Payments (in thousands) | | :------------------- | :---------------------------------------- | | 2024 | $— | | 2025 | $12,607 | | Thereafter | $104 | | Total | $12,711 | 11. Royalty-Linked Notes The company issued Royalty-Linked Notes (RLNs) as part of private placements, entitling holders to payments based on a percentage of U.S. net revenues from specified sulopenem products, capped at $160.00 per RLN. The RLNs are accounted for as a derivative liability and remeasured to fair value at each reporting date, with a total liability of $20.3 million as of June 30, 2023 - RLNs entitle holders to payments based on a percentage of U.S. net revenues from specified sulopenem products, contingent on FDA approval by December 31, 2025[86] - Payments on RLNs are capped at a maximum return of $160.00 (4,000 times the principal amount) per note[86] - The RLNs are accounted for as a derivative and remeasured to fair value at each reporting date using DCF analysis[87] | Metric (in thousands) | June 30, 2023 | | :-------------------- | :------------ | | Total liability related to the sale of future royalties, on inception | $10,990 | | Adjustments to fair value | $5,544 | | Total liability at June 30, 2023 | $20,251 | 12. Shareholders' Equity The company's shareholders approved an increase in authorized ordinary shares to 80,000,000 at $0.01 par value. The company sold 355,765 ordinary shares for net proceeds of $0.4 million under an 'at-the-market' agreement and 3,592,555 ordinary shares were issued upon exchange of Exchangeable Notes - Authorized ordinary shares increased to 80,000,000 at $0.01 par value as of June 30, 2023[92] - During the six months ended June 30, 2023, 355,765 ordinary shares were sold under an 'at-the-market' agreement for net proceeds of $0.4 million[93] - From January 21, 2021, to June 30, 2023, $39.2 million aggregate principal amount of Exchangeable Notes were exchanged for 3,592,555 ordinary shares[94] - The company has 100,000,000 authorized undesignated preferred shares, with no shares issued as of June 30, 2023[102] 13. Share-Based Compensation The company operates under the 2018 Equity Incentive Plan and the 2021 Inducement Equity Incentive Plan, granting share options and restricted share units (RSUs). Total share-based compensation expense for the six months ended June 30, 2023, was $503 thousand, significantly lower than $3.9 million in the prior year, with unamortized expense of $1.4 million remaining - The company granted 857,500 share options during the six months ended June 30, 2023, compared to 152,456 in the prior year[113] | Metric (in thousands) | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :-------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | R&D share-based compensation | $95 | $614 | $219 | $1,140 | | G&A share-based compensation | $15 | $1,370 | $284 | $2,739 | | Total share-based compensation expense | $110 | $1,984 | $503 | $3,879 | - Total unamortized share-based compensation expense for options and RSUs was $1.4 million as of June 30, 2023, expected to be recognized over a weighted average vesting period of 2.57 years[117] 14. Income Taxes The company recorded an income tax expense of $310 thousand for the six months ended June 30, 2023. It has significant net operating loss carryforwards in Ireland ($38.4 million as of June 30, 2023) for which a full valuation allowance has been recognized due to uncertainty of realization | Metric (in thousands) | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :-------------------- | :----------------------------- | :----------------------------- | | Income tax expense | $310 | $770 | - As of June 30, 2023, the company had net operating loss carryforwards in Ireland of approximately $38.4 million, with a full valuation allowance recognized[119] 15. Commitments and Contingencies The company is obligated to Pfizer for potential future regulatory and sales milestone payments, as well as single-digit to mid-teens royalties on net sales of licensed products under the Pfizer License. Royalty-Linked Notes (RLNs) also entitle holders to payments based on U.S. sulopenem sales, contingent on FDA approval by December 31, 2025, with a maximum return of $160 per RLN. The company has no material legal proceedings or contingent liabilities from ordinary business - Under the Pfizer License, the company is obligated to pay Pfizer potential future regulatory and sales milestone payments (ranging from $250 million to $1.0 billion) and royalties (single-digit to mid-teens percentage) on net sales of each licensed product[121] - RLNs entitle holders to payments based on a percentage of U.S. net revenues from specified sulopenem products, contingent on FDA approval by December 31, 2025, with a maximum return of $160.00 per RLN[122] - The company has no contingent liabilities from legal claims in the ordinary course of business[123] 16. Condensed Consolidating Financial Statements Iterum Bermuda, a wholly-owned finance subsidiary, issued Exchangeable Notes and Royalty-Linked Notes (RLNs). Iterum Therapeutics plc and its Subsidiary Guarantors provide a full and unconditional guarantee of Iterum Bermuda's obligations, with no material differences in assets, liabilities, or operations compared to the consolidated statements - Iterum Bermuda, a wholly-owned finance subsidiary, issued $51.8 million in Exchangeable Notes and $0.1 million in RLNs[125] - Iterum Therapeutics plc and its Subsidiary Guarantors fully and unconditionally guarantee Iterum Bermuda's obligations under the Exchangeable Notes and RLNs[126] - The assets, liabilities, and results of operations of the parent and subsidiary guarantors are not materially different from the condensed consolidated financial statements[126] 17. Subsequent Events On August 1, 2023, the company's shareholders did not approve the renewal of the disapplication of statutory pre-emption rights, failing to meet the required 75% affirmative vote under Irish law, despite receiving over 62% support - Shareholders did not approve the renewal of the disapplication of statutory pre-emption rights at an extraordinary general meeting on August 1, 2023, failing to meet the 75% affirmative vote required by Irish law[127] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the company's financial condition and operational results, highlighting its status as a clinical-stage pharmaceutical company focused on sulopenem. It discusses the significant operating losses, the ongoing Phase 3 clinical trial (REASSURE) in response to the FDA's Complete Response Letter (CRL), and the need for additional funding. The analysis covers key components of operations, detailed results for the three and six months ended June 30, 2023 and 2022, and the company's liquidity and capital resources Overview Iterum Therapeutics is a clinical-stage pharmaceutical company developing sulopenem as a potential first oral and IV branded penem globally. The company is conducting a Phase 3 clinical trial (REASSURE) for oral sulopenem in uUTIs, following a Complete Response Letter from the FDA. It has incurred significant operating losses and is evaluating strategic alternatives to secure additional funding - Iterum Therapeutics is a clinical-stage pharmaceutical company focused on developing sulopenem as a potential first oral and IV branded penem globally[130] - The company is conducting a Phase 3 clinical trial, REASSURE, for oral sulopenem for the treatment of uUTIs, in response to a Complete Response Letter (CRL) from the FDA in July 2021[131] - The company has incurred significant operating losses since inception, with an accumulated deficit of $445.1 million as of June 30, 2023[132] - Management believes existing cash, cash equivalents, and short-term investments ($44.7 million as of June 30, 2023) are sufficient to fund operations for at least one year[135] - The company is evaluating corporate, strategic, financial, and financing alternatives to maximize stakeholder value[135] Components of Our Results of Operations This section outlines the key components of the company's results of operations: Research and Development (R&D) expenses, General and Administrative (G&A) expenses, Interest Expense, Adjustments to Fair Value of Derivatives, Other Income, and Provision for Income Taxes. R&D costs are expensed as incurred, G&A includes executive and administrative functions, and derivative liabilities are revalued quarterly. The company recognizes income taxes under the asset and liability method - Research and development expenses include costs for CROs, CMOs, clinical trials, manufacturing, employee-related expenses, regulatory compliance, and third-party licensing agreements[136] - General and administrative expenses primarily cover salaries, benefits, share-based compensation for executive and administrative personnel, professional fees, and pre-commercialization activities[139][140] - Interest expense, net, includes interest on Exchangeable Notes, realized gains/losses on short-term investments, and interest earned on cash and equivalents[142] - Derivative liabilities (RLNs and embedded features in Exchangeable Notes) are revalued quarterly, with changes in fair value recorded in the statements of operations[143] - The company recognizes income taxes using the asset and liability method, with valuation allowances provided when deferred tax assets are not likely to be realized[145][146] Results of Operations The company experienced a significant increase in operating loss and net loss for both the three and six months ended June 30, 2023, compared to the prior year. This was primarily driven by a substantial increase in research and development expenses due to the REASSURE trial, coupled with negative adjustments to the fair value of derivatives Comparison of the three months ended June 30, 2023 and 2022 This section compares the company's operational performance and financial results for the second quarter of 2023 versus 2022 | Metric (in thousands) | June 30, 2023 | June 30, 2022 | Change | | :-------------------- | :------------ | :------------ | :----- | | Research and development | $(8,964) | $(3,984) | $(4,980) | | General and administrative | $(1,858) | $(4,066) | $2,208 | | Total operating expenses | $(10,822) | $(8,050) | $(2,772) | | Operating loss | $(10,822) | $(8,050) | $(2,772) | | Total other (expense) / income, net | $(1,234) | $1,658 | $(2,892) | | Loss before income taxes | $(12,056) | $(6,392) | $(5,664) | - Research and development expenses increased by $5.0 million, primarily due to a $5.7 million increase in costs for the REASSURE trial, partially offset by a $0.5 million decrease in personnel-related costs[149] - General and administrative expenses decreased by $2.2 million, mainly due to a $1.4 million decrease in personnel-related costs (including share-based compensation) and a $0.5 million decrease in legal fees[150] - Adjustments to fair value of derivatives resulted in a $1.0 million expense in Q2 2023, compared to a $2.2 million income in Q2 2022, primarily due to an increase in the fair value of RLNs[153] Comparison of the six months ended June 30, 2023 and 2022 This section compares the company's operational performance and financial results for the first half of 2023 versus 2022 | Metric (in thousands) | June 30, 2023 | June 30, 2022 | Change | | :-------------------- | :------------ | :------------ | :----- | | Research and development | $(15,396) | $(7,424) | $(7,972) | | General and administrative | $(3,956) | $(7,999) | $4,043 | | Total operating expenses | $(19,352) | $(15,423) | $(3,929) | | Operating loss | $(19,352) | $(15,423) | $(3,929) | | Total other (expense) / income, net | $(2,470) | $5,958 | $(8,428) | | Loss before income taxes | $(21,822) | $(9,465) | $(12,357) | - Research and development expenses increased by $8.0 million, primarily due to a $9.1 million increase in costs for the REASSURE trial, partially offset by a $0.9 million decrease in personnel-related costs[156] - General and administrative expenses decreased by $4.0 million, mainly due to a $2.6 million decrease in personnel-related costs (including share-based compensation) and a $0.8 million decrease in legal fees[158] - Adjustments to fair value of derivatives resulted in a $1.8 million expense in H1 2023, compared to a $7.3 million income in H1 2022, primarily due to an increase in the fair value of RLNs[161] Liquidity and Capital Resources The company has historically funded operations through equity and debt financings, with $44.7 million in cash, cash equivalents, and short-term investments as of June 30, 2023, expected to fund operations for at least one year. However, the recent failure to renew the disapplication of statutory pre-emption rights limits future equity fundraising flexibility. The company anticipates significant future expenses for clinical trials and commercialization, requiring additional capital - Shareholders did not approve the renewal of the disapplication of statutory pre-emption rights at an EGM on August 1, 2023, limiting the company's ability to issue new shares for cash without a time-consuming pro-rata rights offering[164][165] - As of June 30, 2023, the company had $44.7 million in cash, cash equivalents, and short-term investments, which management believes is sufficient to fund operations for at least one year[168][188] - Net cash used in operating activities was $17.2 million for the six months ended June 30, 2023, compared to $9.7 million in the prior year[182] - The company expects to incur significant expenses for the REASSURE clinical trial, potential marketing approval, and commercialization, requiring additional funding through equity, debt, or collaborations[187][192] - Contractual obligations include potential regulatory and sales milestone payments and royalties to Pfizer, and payments to RLN holders based on U.S. sulopenem sales[193][194] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company is exposed to interest rate risk on its $44.7 million in cash, cash equivalents, and short-term investments, with a 100 basis point interest rate increase estimated to decrease fair value by $0.1 million. It also faces foreign currency risk from global CRO/CMO agreements, though realized foreign currency gains/losses were not material. Inflation is noted as a potential future risk to operating costs - As of June 30, 2023, the company held $44.7 million in cash, cash equivalents, and short-term investments, primarily in money market funds, commercial paper, and U.S. Treasury bonds[197] - An immediate 100 basis point increase in interest rates would result in an estimated $0.1 million decrease in the fair market value of the investment portfolio[197] - The company is exposed to foreign currency rate fluctuations from global CRO and CMO agreements, but realized net foreign currency gains and losses were not material for the six months ended June 30, 2023[198] - Inflation has not had a material effect on financial statements to date, but continued increases could impact labor, research, manufacturing, and development costs[199] Item 4. Controls and Procedures Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective at a reasonable assurance level as of June 30, 2023. No material changes in internal control over financial reporting occurred during the three months ended June 30, 2023 Evaluation of Disclosure Controls and Procedures This section assesses the effectiveness of the company's controls designed to ensure timely and accurate financial disclosures - As of June 30, 2023, management, with CEO and CFO participation, concluded that disclosure controls and procedures were effective at the reasonable assurance level[200] Changes in Internal Control over Financial Reporting This section reports on any material changes to the company's internal control over financial reporting during the period - No material changes in internal control over financial reporting occurred during the three months ended June 30, 2023[201] PART II. OTHER INFORMATION This section includes legal proceedings, comprehensive risk factors, and a list of exhibits for the company's quarterly report Item 1. Legal Proceedings The company is not currently a party to any material legal proceedings and is unaware of any pending or threatened litigation that could materially adversely affect its business, operating results, or financial condition - The company is not currently involved in any material legal proceedings[203] - No pending or threatened litigation is known that could have a material adverse effect on the business, operating results, or financial condition[203] Item 1A. Risk Factors This section outlines significant risks that could materially and adversely affect the company's business, financial condition, results of operations, and future growth prospects. Key risk areas include the company's financial position and capital requirements, challenges in clinical development and commercialization of its sole product candidate (sulopenem), dependence on third parties, intellectual property protection, regulatory approval and compliance, employee matters, taxation, and risks related to its ordinary shares Risks Related to Our Financial Position and Capital Requirements The company has a history of net losses and an accumulated deficit of $445.1 million, with its ability to achieve profitability dependent on the successful commercialization of sulopenem. It requires significant additional capital to fund ongoing clinical trials and potential commercialization, but recent shareholder non-approval of pre-emption rights disapplication limits its ability to raise equity efficiently. Failure to secure funding could force delays or termination of development programs - The company has incurred net losses since inception, with an accumulated deficit of $445.1 million as of June 30, 2023[205] - The FDA issued a Complete Response Letter (CRL) for oral sulopenem, requiring at least one additional clinical trial (REASSURE) and non-clinical PK/PD studies, which are ongoing[205] - The company will require additional capital to fund operations, including clinical trials and potential commercialization, and faces risks if financing is not available on acceptable terms[210][211] - Shareholders did not approve the disapplication of statutory pre-emption rights, limiting the company's ability to issue new shares for cash without a time-consuming pro-rata rights offering[212] - The company's financial statements include substantial non-operating gains or losses from quarterly revaluation of derivative instruments, which are highly sensitive to share price and management assumptions[216] Risks Related to Clinical Development and Commercialization The company's success hinges entirely on the development and commercialization of sulopenem, which faces significant risks including the need to resolve issues from the FDA's CRL, potential delays in clinical trials (like REASSURE), and the inherent uncertainty of regulatory approval. The company lacks prior experience in obtaining regulatory approval or commercializing drugs, and may struggle with market acceptance due to existing therapies, pricing, and competition. Unforeseen adverse events or side effects could also halt development or limit commercial potential - The company's prospects depend entirely on the successful development and commercialization of its sole product candidate, sulopenem, for which FDA approval is not assured[222] - The FDA issued a Complete Response Letter (CRL) for oral sulopenem, requiring additional clinical trial data and non-clinical PK/PD studies, which could significantly delay or prevent approval[217][219] - The company has no prior experience in obtaining regulatory approval or commercializing a drug, posing challenges in navigating extensive preclinical and clinical trials[252] - Clinical trials may fail to demonstrate safety and efficacy, leading to additional costs, delays, or abandonment of product development[256][262] - Serious adverse events or undesirable side effects could cause clinical trial suspension, regulatory denial, or post-approval restrictions, limiting commercial potential[274][280] - Market acceptance for sulopenem is uncertain due to existing therapies, physician prescribing patterns, and the need for significant resources to educate the medical community[282][284] - The company lacks a commercial organization and must build or outsource sales, marketing, and distribution capabilities, which is resource-intensive and time-consuming[288][290] - The company faces substantial competition from major pharmaceutical and biotechnology companies with greater resources and expertise in developing and commercializing anti-infective products[295][299] Risks Related to Our Dependence on Third Parties The company heavily relies on the Pfizer License for sulopenem's intellectual property and is dependent on third-party collaborations for development and commercialization in certain territories. It also relies on CROs for clinical trials and CMOs for manufacturing, increasing risks of non-compliance, delays, or insufficient supply. Failure of these third parties to perform as expected could severely impact regulatory approval and commercialization efforts - The company relies heavily on the Pfizer License for exclusive worldwide rights to develop, manufacture, and commercialize sulopenem, with obligations including diligence, milestone payments, and royalties[316][317][318] - Failure to comply with Pfizer License obligations could lead to termination, loss of rights, and material harm to the business[319] - The company expects to depend on third-party collaborations for development and commercialization of sulopenem in certain territories, but such arrangements carry risks of non-performance, delays, or termination[320][322] - Reliance on third-party CROs for preclinical studies and clinical trials limits control over these activities, and their failure to perform could delay or prevent regulatory approval[326][327][329] - The company relies on third-party CMOs for manufacturing preclinical, clinical, and commercial supplies of sulopenem, which increases risks of delays, non-compliance with cGMPs, and potential misappropriation of trade secrets[331][335] Risks Related to Our Intellectual Property The company's intellectual property (IP) protection for sulopenem is critical, relying heavily on the Pfizer License and a combination of patents, trademarks, and trade secrets. Risks include the expiration of existing patents, challenges to patent validity or enforceability, inability to obtain new patents, and the high costs and uncertainties of IP litigation. Global IP protection is challenging, and changes in patent laws or jurisprudence could diminish the value of its IP - The company relies heavily on the Pfizer License for intellectual property rights related to oral sulopenem and know-how for IV sulopenem, but does not own patent rights for the IV formulation[341] - Failure to obtain or maintain broad patent protection for sulopenem or other product candidates could harm the business, as patent prosecution is expensive and uncertain[344][346] - The patent position of pharmaceutical companies is highly uncertain, with risks of third-party challenges, invalidation, or narrow interpretation of patent claims[348] - The licensed U.S. patent for oral sulopenem's composition of matter expires in 2029 (potentially 2034 with extension), and a newly granted patent for the bilayer tablet expires no earlier than 2039, but patent lifespan limitations could reduce commercial value[352] - Changes in patent laws (e.g., America Invents Act) or jurisprudence could diminish patent value and increase prosecution/defense costs[359][361][364] - The company may be involved in costly and time-consuming lawsuits to protect or enforce its IP, or defend against infringement claims by third parties[365][368] - Protecting IP globally is expensive and challenging, as laws vary, and enforcement may be less effective in some countries[374][375] - Failure to protect trade secrets through confidentiality agreements or independent development by competitors could harm the business[381][383] - Trademark registrations are not guaranteed, and FDA/EMA approval of proprietary names is required, which could lead to delays or additional costs[385][386] Risks Related to Regulatory Approval and Other Legal Compliance Matters The company faces substantial risks in obtaining and maintaining regulatory approvals for sulopenem, particularly after receiving a CRL from the FDA. The approval process is lengthy, uncertain, and subject to regulatory discretion, with no guarantee that the ongoing REASSURE trial or additional data will be sufficient. Post-approval, the company will be subject to extensive ongoing regulatory obligations, including cGMPs and reporting requirements. Additionally, compliance with complex healthcare fraud and abuse laws, anti-corruption laws, and evolving global data privacy regulations poses significant legal and financial risks - Failure to obtain regulatory approval for sulopenem will prevent commercialization and materially impair revenue generation[388][389] - The FDA's Complete Response Letter (CRL) for oral sulopenem requires additional clinical trial data and non-clinical PK/PD studies, and there is no assurance that these will be adequate for resubmission or approval[391] - An SPA agreement with the FDA for the REASSURE trial does not guarantee marketing approval or a faster review process[395][396] - Disruptions at the FDA or other government agencies (e.g., funding shortages, shutdowns) could delay product review and approval[397][399] - Obtaining marketing approval outside the U.S. is a separate, complex process, and FDA approval does not ensure approval by foreign authorities (e.g., EMA may require additional trials)[401][402] - Post-approval, sulopenem will be subject to ongoing regulatory requirements for labeling, manufacturing (cGMPs), advertising, and safety reporting, with non-compliance leading to penalties or market withdrawal[407][408][410] - Relationships with healthcare providers and payors are subject to anti-kickback, fraud and abuse, and other healthcare laws (e.g., False Claims Act, HIPAA), with potential for significant penalties for non-compliance[413][415][417] - Healthcare legislative reforms (e.g., ACA, IRA) could lead to reduced reimbursement, increased pricing pressure, and new regulatory requirements, adversely affecting business and profitability[419][425][430][434] - Compliance with anti-corruption laws (e.g., FCPA) and trade control laws is complex, especially in international operations, and violations could result in criminal/civil penalties and reputational harm[445][448] - Evolving global data privacy regulations (e.g., GDPR, CCPA) impose strict requirements on personal data processing, with non-compliance leading to significant fines, litigation, and business disruption[449][450][452][453] Risks Related to Employee Matters and Managing Growth The company's future success is highly dependent on retaining key executives, particularly the CEO, and attracting qualified personnel in a competitive industry. Managing potential growth, especially if sulopenem receives regulatory approval, will require significant managerial attention and expansion of operational and financial systems, which could lead to operational mistakes or diversion of resources. Operating in international markets also introduces additional risks - The company's future success depends on retaining its CEO and other key executives, and attracting/retaining qualified personnel in a competitive industry[456][457] - Managing potential growth in employees and operations (e.g., manufacturing, regulatory affairs, sales) could divert management attention and lead to operational weaknesses[458][459] - Conducting business in markets outside the United States exposes the company to additional risks, including intellectual property protection, economic instability, and compliance with foreign regulations[461] - Future acquisitions could disrupt business, dilute shareholders, or reduce financial resources, and may require consent from holders of the Securities[462] Risks Related to Taxation The company faces risks related to its U.S. federal income tax status as a potential Passive Foreign Investment Company (PFIC), which could subject U.S. Holders to adverse tax consequences. Additionally, transfers of ordinary shares may be subject to Irish stamp duty, and dividends could be subject to Irish dividend withholding tax or income tax for certain shareholders. Changes in U.S. federal income tax laws could also have material consequences - The company was a PFIC for U.S. federal income tax purposes in 2017 and its status in future years depends on assets and activities, potentially subjecting U.S. Holders to adverse tax consequences[465] - If the company is a PFIC and a U.S. Holder does not make a mark-to-market election, they may face deferred tax and interest charges on distributions and dispositions[468] - Transfers of ordinary shares not through DTC may be subject to Irish stamp duty (currently 1%)[474] - Dividends paid by the company may be subject to Irish dividend withholding tax (currently 25%) or Irish income tax for certain shareholders, though exemptions exist for EU/treaty-country residents[475][476] - Gifts or inheritances of ordinary shares could be subject to Irish capital acquisitions tax[477] Risks Related to Our Ordinary Shares The company's ordinary shares have experienced significant price volatility, and an active trading market may not be sustained. Failure to comply with Nasdaq listing requirements could lead to delisting, impacting liquidity and capital access. The issuance of additional shares, including from Exchangeable Notes and warrants, could dilute existing shareholders. Irish law and anti-takeover provisions may limit shareholder influence and make acquisitions more difficult. The company also incurs increased costs as a public company and faces challenges in managing its capital structure due to Irish legal requirements - The price of the company's ordinary shares has been highly volatile, with a range of $0.705 to $4.20 in the 12 months ending August 9, 2023, and may continue to fluctuate dramatically[480] - Failure to comply with Nasdaq Capital Market listing requirements (e.g., minimum bid price, market value of publicly held shares) could lead to delisting, negatively impacting liquidity and capital access, and triggering debt defaults[485][486] - The issuance of additional ordinary shares, whether for capital raising or upon exchange/exercise of convertible securities (Exchangeable Notes, warrants, options), may dilute existing shareholders' ownership and voting power[493][494][495] - 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[497] - Irish law differs from U.S. law, potentially affording less protection to shareholders and making enforcement of U.S. judgments difficult[503][505] - Anti-takeover provisions in the Articles of Association and under Irish law (e.g., Irish Takeover Rules) could make acquisitions more difficult and limit shareholder influence over management[519][522] - Certain capital structure decisions, such as increasing authorized share capital or disapplying pre-emption rights, require specific shareholder approvals under Irish law, which may limit financial flexibility[525][526][527] - The company incurs increased costs and management time due to operating as a public company, subject to SEC and Nasdaq regulations (e.g., Sarbanes-Oxley Act)[509] Item 6. Exhibits This section lists all exhibits filed or furnished as part of the Quarterly Report on Form 10-Q, including the company's amended and restated constitution, an amendment to a consulting agreement, certifications from the principal executive and financial officers, and Inline XBRL documents - Exhibits include the Amended and Restated Constitution, an amendment to a consulting agreement, and certifications required by the Sarbanes-Oxley Act[530] - The report includes Inline XBRL documents for instance, schema, calculation, definition, label, and presentation linkbase[530] Signatures The Quarterly Report on Form 10-Q was duly signed on August 11, 2023, 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 - The report was signed by Corey Fishman, President and Chief Executive Officer, and Judith Matthews, Chief Financial Officer, on August 11, 2023[534]