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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

(Mark One)

 

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

 

For the quarterly period ended March 31, 2023

OR

 

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

 

For the transition period from to

Commission File Number: 001-38503

 

Iterum Therapeutics plc

(Exact name of registrant as specified in its charter)

 

 

Ireland

98-1283148

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

Fitzwilliam Court 1st Floor,

Leeson Close,

Dublin 2, Ireland

(Address of principal executive offices)

Not applicable

(Zip Code)

 

(+353) 1 669-4820

(Registrant’s telephone number, including area code)

 

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

Title of each class

 

Trading Symbol(s)

 

Name of each exchange on which registered

Ordinary Shares, $0.01 par value per share

 

ITRM

 

The Nasdaq Stock Market LLC

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

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

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

 

Large accelerated filer

Accelerated filer

 

 

 

 

Non-accelerated filer

Smaller reporting company

 

 

 

 

 

 

 

 

 

 

 

Emerging growth company

 

 

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

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

As of April 30, 2023, the registrant had 12,942,381 ordinary shares, $0.01 par value per share, outstanding.

 

 


 

Table of Contents

 

Page

PART I.

FINANCIAL INFORMATION

1

Item 1.

Financial Statements (Unaudited)

1

Condensed Consolidated Balance Sheets

1

Condensed Consolidated Statements of Operations and Comprehensive Loss

2

Condensed Consolidated Statements of Cash Flows

3

 

Condensed Consolidated Statements of Stockholders' Equity

4

Notes to Unaudited Condensed Consolidated Financial Statements

5

Item 2.

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

24

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

36

Item 4.

Controls and Procedures

36

PART II.

OTHER INFORMATION

37

Item 1.

Legal Proceedings

37

Item 1A.

Risk Factors

37

Item 6.

Exhibits

96

 

Signatures

97

 

i


 

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS AND INDUSTRY DATA

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

our use of cash reserves;
the design, initiation, timing, progress and results of our preclinical studies and clinical trials, and our research and development programs including the ongoing Phase 3 clinical trial being conducted in response to the Complete Response Letter (CRL) received from the U.S. Food and Drug Administration in July 2021 in connection with our New Drug Application (NDA) for oral sulopenem;
our ability to resolve the issues set forth in the CRL and resubmit our NDA;
our ability to retain the continued service of our key professionals and to identify, hire and retain additional qualified professionals;
our ability to advance product candidates into, and successfully complete, clinical trials;
the potential advantages of our product candidates;
the timing or likelihood of regulatory filings and approvals, including with respect to the potential resubmission of our NDA for oral sulopenem;
the commercialization of our product candidates, if approved;
our manufacturing plans;
our sales, marketing and distribution capabilities and strategy;
market acceptance of any product we successfully commercialize;
the pricing, coverage and reimbursement of our product candidates, if approved;
the implementation of our business model, strategic plans for our business and product candidates;
the scope of protection we are able to establish and maintain for intellectual property rights covering our product candidates and our ability to defend and enforce any such intellectual property rights;
our ability to enter into strategic arrangements, collaborations and/or commercial partnerships in the United States and other territories and the potential benefits of such arrangements;
our estimates regarding expenses, capital requirements and needs for additional financing;
our expectations regarding how far into the future our cash on hand will fund our ongoing operations;
our financial performance;
developments relating to our competitors and our industry;
our ability to maintain compliance with listing requirements of the Nasdaq Capital Market;
the impact of general economic conditions, including inflation; and
the outcome, impact, effects and results of our evaluation of corporate, strategic, financial and financing alternatives, including the terms, timing, structure, value, benefits and costs of any corporate, strategic, financial or financing alternative and our ability to complete one at all.

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

ii


 

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

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

This Quarterly Report also contains industry, market and competitive position data from our own internal estimates and research as well as industry and general publications and research surveys and studies conducted by third parties. Industry publications, studies, and surveys generally state that they have been obtained from sources believed to be reliable, although they do not guarantee the accuracy or completeness of such information. Our internal data and estimates are based upon information obtained from trade and business organizations and other contacts in the markets in which we operate and our management’s understanding of industry conditions. While we believe that each of these studies and publications is reliable, we have not independently verified market and industry data from third-party sources. While we believe our internal company research is reliable and the market definitions are appropriate, neither such research nor these definitions have been verified by any independent source. The industry in which we operate is subject to a high degree of uncertainty and risks due to various factors, including those described in the section titled “Risk Factors”.

In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this Quarterly Report, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain, and investors are cautioned not to unduly rely upon these statements.

 

 

iii


 

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited).

ITERUM THERAPEUTICS PLC

Condensed Consolidated Balance Sheets

(In thousands except share and per share data)

(Unaudited)

 

 

March 31,

 

 

December 31,

 

 

 

2023

 

 

2022

 

Assets

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

16,831

 

 

$

21,092

 

Short-term investments

 

 

34,992

 

 

 

39,712

 

Income taxes receivable

 

 

188

 

 

 

302

 

Prepaid expenses and other current assets

 

 

2,235

 

 

 

1,338

 

Total current assets

 

 

54,246

 

 

 

62,444

 

Intangible asset, net

 

 

1,290

 

 

 

1,719

 

Property and equipment, net

 

 

62

 

 

 

69

 

Restricted cash

 

 

34

 

 

 

34

 

Other assets

 

 

2,488

 

 

 

2,567

 

Total assets

 

$

58,120

 

 

$

66,833

 

Liabilities and Shareholders’ Equity

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

$

2,235

 

 

$

2,774

 

Accrued expenses

 

 

3,599

 

 

 

4,346

 

Derivative liability

 

 

187

 

 

 

196

 

Other current liabilities

 

 

1,776

 

 

 

1,748

 

Total current liabilities

 

$

7,797

 

 

$

9,064

 

Long-term debt, less current portion

 

 

10,877

 

 

 

10,094

 

Royalty-linked notes

 

 

19,258

 

 

 

18,372

 

Other liabilities

 

 

1,231

 

 

 

1,304

 

Total liabilities

 

$

39,163

 

 

$

38,834

 

Commitments and contingencies (Note 15)

 

 

 

 

 

 

Shareholders’ equity

 

 

 

 

 

 

Undesignated preferred shares, $0.01 par value per share: 100,000,000 shares
authorized at March 31, 2023 and December 31, 2022;
no shares issued at
March 31, 2023 and December 31, 2022

 

 

 

 

 

 

Ordinary shares, $0.01 par value per share: 20,000,000 shares authorized at March 31, 2023 and December 31, 2022, 12,805,833 shares issued at March 31, 2023; 12,598,641 shares issued at December 31, 2022

 

 

128

 

 

 

126

 

Additional paid-in capital

 

 

451,776

 

 

 

451,150

 

Accumulated deficit

 

 

(432,816

)

 

 

(422,927

)

Accumulated other comprehensive loss

 

 

(131

)

 

 

(350

)

Total shareholders' equity

 

 

18,957

 

 

 

27,999

 

Total liabilities and shareholders’ equity

 

$

58,120

 

 

$

66,833

 

 

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

 

1


 

ITERUM THERAPEUTICS PLC

Condensed Consolidated Statements of Operations and Comprehensive Loss

(In thousands, except share and per share data)

(Unaudited)

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2023

 

 

2022

 

Operating expenses:

 

 

 

 

 

 

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

 

Statements of Comprehensive Income

 

 

 

 

 

 

Net loss

 

$

(9,889

)

 

$

(3,500

)

Other comprehensive income:

 

 

 

 

 

 

  Unrealized gain on marketable securities

 

 

219

 

 

 

 

Comprehensive loss

 

$

(9,670

)

 

$

(3,500

)

 

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

2


 

ITERUM THERAPEUTICS PLC

Condensed Consolidated Statements of Cash Flows

(In thousands, except share and per share data)

(Unaudited)

 

 

 

Three Months Ended March 31,

 

 

 

2023

 

 

2022

 

Cash flows from operating activities:

 

 

 

 

 

 

Net loss

 

$

(9,889

)

 

$

(3,500

)

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

 

 

 

 

 

 

Depreciation

 

 

7

 

 

 

29

 

Amortization of intangible asset

 

 

429

 

 

 

429

 

Share-based compensation expense

 

 

393

 

 

 

1,895

 

Interest on short-term investments

 

 

(77

)

 

 

(100

)

Amortization of debt discount and deferred financing costs

 

 

578

 

 

 

572

 

Interest on exchangeable notes - non-cash

 

 

205

 

 

 

205

 

Adjustments to fair value of derivatives

 

 

878

 

 

 

(5,177

)

Other

 

 

606

 

 

 

1,193

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

Prepaid expenses and other current assets

 

 

(1,445

)

 

 

181

 

Accounts payable

 

 

(539

)

 

 

(195

)

Accrued expenses

 

 

(748

)

 

 

810

 

Income taxes

 

 

114

 

 

 

427

 

Other liabilities

 

 

(102

)

 

 

(174

)

Net cash used in operating activities

 

 

(9,590

)

 

 

(3,405

)

Cash flows from investing activities:

 

 

 

 

 

 

Purchases of short-term investments

 

 

(3,892

)

 

 

(11,307

)

Proceeds from sale of short-term investments

 

 

8,998

 

 

 

20,900

 

Net cash provided by investing activities

 

 

5,106

 

 

 

9,593

 

Cash flows from financing activities:

 

 

 

 

 

 

Repayments of long-term debt

 

 

 

 

 

(2,251

)

Proceeds from issuance of ordinary shares, net of transaction costs

 

 

235

 

 

 

 

Net cash provided by / (used in) financing activities

 

 

235

 

 

 

(2,251

)

Effect of exchange rates on cash and cash equivalents

 

 

(12

)

 

 

(22

)

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

 

 

(4,261

)

 

 

3,915

 

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

 

 

21,126

 

 

 

27,510

 

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

 

$

16,865

 

 

$

31,425

 

Supplemental Disclosure of Cash Flow Information:

 

 

 

 

 

 

Income taxes paid - U.S.

 

$

11

 

 

$

 

Interest paid

 

$

 

 

$

22

 

 

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

3


 

ITERUM THERAPEUTICS PLC

Condensed Consolidated Statements of Stockholders' Equity

(In thousands, except share and per share data)

(Unaudited)

 

 

 

Ordinary Shares

 

 

Additional

 

 

 

 

 

Accumulated Other

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Paid
in Capital

 

 

Accumulated Deficit

 

 

Comprehensive Income (Loss)

 

 

Total

 

Balance at December 31, 2022

 

 

12,598,641

 

 

$

126

 

 

$

451,150

 

 

$

(422,927

)

 

$

(350

)

 

$

27,999

 

Issuance of ordinary shares, net

 

 

207,192

 

 

 

2

 

 

 

233

 

 

 

 

 

 

 

 

 

235

 

Share-based compensation expense

 

 

 

 

 

 

 

 

393

 

 

 

 

 

 

 

 

 

393

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(9,889

)

 

 

 

 

 

(9,889

)

Unrealized gain on available-for-sale securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

219

 

 

 

219

 

Balance at March 31, 2023

 

 

12,805,833

 

 

$

128

 

 

$

451,776

 

 

$

(432,816

)

 

$

(131

)

 

$

18,957

 

 

 

 

Ordinary Shares

 

 

Additional

 

 

 

 

 

Accumulated Other

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Paid
in Capital

 

 

Accumulated Deficit

 

 

Comprehensive Income (Loss)

 

 

Total

 

Balance at December 31, 2021

 

 

12,185,019

 

 

$

122

 

 

$

428,605

 

 

$

(378,493

)

 

$

 

 

$

50,234

 

Issuance of ordinary shares, net

 

 

38,542

 

 

 

 

 

 

6

 

 

 

 

 

 

 

 

 

6

 

Share-based compensation expense

 

 

 

 

 

 

 

 

1,895

 

 

 

 

 

 

 

 

 

1,895

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(3,500

)

 

 

 

 

 

(3,500

)

Balance at March 31, 2022

 

 

12,223,561

 

 

$

122

 

 

$

430,506

 

 

$

(381,993

)

 

$

 

 

$

48,635

 

 

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

4


ITERUM THERAPEUTICS PLC

Notes to Unaudited Condensed Consolidated Financial Statements
(In thousands, except share and per share data)

 

 

1. Basis of Presentation

Iterum Therapeutics plc (the Company) was incorporated under the laws of the Republic of Ireland in June 2015 as a limited company and re-registered as a public limited company on March 20, 2018. The Company maintains its registered office at Fitzwilliam Court, 1st Floor, Leeson Close, Dublin 2, Ireland. The Company commenced operations in November 2015. The Company licensed global rights to its novel anti-infective compound, sulopenem, from Pfizer Inc. (Pfizer). The Company is a clinical-stage pharmaceutical company dedicated to developing and commercializing sulopenem to be potentially the first oral penem available in the United States and the first and only oral and intravenous (IV) branded penem available globally.

Since inception, the Company has devoted substantially all of its efforts to research and development, recruiting management and technical staff, and raising capital, and has financed its operations through the issuance of ordinary and convertible preferred shares, debt raised under a financing arrangement with Silicon Valley Bank (SVB) including the Paycheck Protection Program loan (PPP loan), a sub-award from the Trustees of Boston University under the Combating Antibiotic Resistant Bacteria Biopharmaceutical Accelerator (CARB-X) program and the proceeds of a private placement (Private Placement) and subsequent rights offering (Rights Offering) pursuant to which its wholly owned subsidiary, Iterum Therapeutics Bermuda Limited (Iterum Bermuda) issued and sold approximately $51.8 million aggregate principal amount of 6.500% Exchangeable Senior Subordinated Notes due 2025 (Exchangeable Notes) and $0.1 million aggregate principal amount of Limited Recourse Royalty-Linked Subordinated Notes (the RLNs and, together with the Exchangeable Notes, the Securities). The Company has not generated any product revenue. The Company is subject to risks and uncertainties common to early-stage companies in the pharmaceutical industry, including, but not limited to, the ability to secure additional capital to fund operations, failure to achieve regulatory approval, failure to successfully develop and commercialize its product candidates, development by competitors of new technological innovations, dependence on key personnel, protection of proprietary technology and compliance with government regulations. Product candidates currently under development will require additional research and development efforts, including regulatory approval prior to commercialization.

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

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

The Company's shareholders approved a reverse share split of the Company's ordinary shares on June 15, 2022, which became effective on August 17, 2022, (the Reverse Share Split). As of 5:00 p.m. Eastern Standard Time on August 17, 2022, every fifteen ordinary shares of $0.01 each (nominal value) in the authorized and unissued and authorized and issued share capital of the Company were consolidated into one ordinary share of $0.15 each (nominal value), and the nominal value of each ordinary share was subsequently reduced from $0.15 to $0.01 nominal value per share. No fractional shares were issued to any shareholders in connection with the Reverse Share Split. Shareholders who were otherwise entitled to receive a fractional ordinary share instead received a cash payment in an amount equal to the net cash proceeds attributable to the sale of such fractional entitlement following aggregation and sale by the Company on behalf of each of the relevant shareholders of the Company's ordinary shares, on the basis of prevailing market prices at such time. As the par value per share of the Company's shares remained at $0.01 per share following the Reverse Share Split, the difference between the total share capital at (par value) prior to the Reverse Share Split and the total share capital (par value) after the Reverse Share Split, has been reclassified as additional paid-in-capital on a retroactive basis. The number of ordinary shares reserved for issuance upon exercise of the Exchangeable Notes, outstanding share options and warrants or upon the vesting of outstanding restricted share units, was adjusted and proportionately decreased and the exercise price of all share options, Exchangeable Notes and warrants was proportionately increased. Additionally, the number of shares that may be the subject of future grants under our share plans was proportionally decreased. Accordingly, all historical share and per share information related to the issued and outstanding ordinary shares, the Exchangeable Notes, share options, restricted share units, warrants and shares reserved for future issuance under the Company's share plans have been adjusted to reflect the Reverse Share Split for all prior periods presented.

The Company filed a universal shelf registration statement on Form S-3 with the SEC, which was declared effective on October 17, 2022 (File No. 333-267795), and pursuant to which the Company registered for sale up to $100.0 million of any combination of debt securities, ordinary shares, preferred shares, subscription rights, purchase contracts, units and/or warrants from time to time and at prices and on terms that the Company may determine. On October 7, 2022, the Company entered into a sales agreement with H.C. Wainwright & Co., LLC (HC Wainwright), as agent, pursuant to which the Company may offer and sell ordinary shares, nominal value $0.01 per share, for aggregate gross sales proceeds of up to $16.0 million (subject to the availability of ordinary shares), from time to time through HC Wainwright by any method permitted that is deemed to be an "at the market offering" as defined in Rule 415 (a)(4) promulgated under the Securities Act of 1933, as amended.

In accordance with Accounting Standards Update (ASU) 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern (Subtopic 205-40), the Company has evaluated whether there are conditions and events, considered in aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern within one year of the date of issue of these quarterly condensed consolidated financial statements.

5


ITERUM THERAPEUTICS PLC

Notes to Unaudited Condensed Consolidated Financial Statements
(In thousands, except share and per share data)

 

The Company has funded its operations to date primarily with proceeds from the sale of preferred shares and ordinary shares, warrants, debt raised under its financing arrangement with SVB including the PPP loan (both of which have been repaid), payments received under the CARB-X program and proceeds of the Private Placement and Rights Offering. The Company has incurred operating losses since inception, including net losses of $9,889 and $3,500 for the three months ended March 31, 2023 and 2022, respectively, and a net loss of $44,434 for the year ended December 31, 2022. The Company had an accumulated deficit of $432,816 as of March 31, 2023 and expects to continue to incur net losses for the foreseeable future. Management believes that its cash and cash equivalents balance of $16,831 and short-term investments balance of $34,992 at March 31, 2023 are sufficient to fund operations until mid-2024. In making this assessment management have considered the planned operations of the company and the ability to adjust its plans if required.

In addition, in parallel, the Company is evaluating its corporate, strategic, financial and financing alternatives, with the goal of maximizing value for its stakeholders. These alternatives could potentially include the licensing, sale or divestiture of the Company’s assets or proprietary technologies, a sale of the Company, a merger or other business combination or another strategic transaction involving the Company. The evaluation of corporate, strategic, financial and financing alternatives may not result in any particular action or any transaction being pursued, entered into or consummated, and there is no assurance as to the timing, sequence or outcome of any action or transaction or series of actions or transactions.

Interim Financial Information

The condensed consolidated balance sheet at December 31, 2022 was derived from audited financial statements, but does not include all disclosures required by GAAP. The accompanying unaudited condensed consolidated financial statements as of March 31, 2023 and for the three months ended March 31, 2023 and 2022 have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (SEC) for interim financial statements. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. These condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and the notes thereto for the year ended December 31, 2022, included in the Company’s Annual Report on Form 10-K filed with the SEC on March 16, 2023. In the opinion of management, all adjustments, consisting only of normal recurring adjustments necessary for a fair statement of the Company’s financial position as of March 31, 2023, and results of operations for the three months ended March 31, 2023 and 2022, and cash flows for the three months ended March 31, 2023 and 2022 have been made. The results of operations for the three months ended March 31, 2023 are not necessarily indicative of the results of operations that may be expected for the year ending December 31, 2023.

2. Summary of Significant Accounting Policies

There have been no material changes in the Company’s significant accounting policies, other than the adoption of accounting pronouncements as described below, as compared to the significant accounting policies described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.

Use of Estimates

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

Specifically, management has estimated variables used to calculate the discounted cash flow analysis (DCF) and assumptions used in the binomial option pricing model to value derivative instruments (see Note 3 – Fair Value of Financial Assets and Liabilities).

Cash and Cash Equivalents

The Company’s cash and cash equivalents consist of cash balances and highly liquid investments with maturities of three months or less at the date of purchase. Accounts held at U.S. financial institutions are insured by the Federal Deposit Insurance Corporation up to $250, while accounts held at Irish financial institutions are insured under the Deposit Guarantee Scheme up to $109 (€100).

Cash accounts with any type of restriction are classified as restricted cash. If restrictions are expected to be lifted in the next twelve months, the restricted cash account is classified as current. Included within restricted cash on the Company’s condensed consolidated balance sheet is $17 as of March 31, 2023 relating to the warrants issued on June 5, 2020 pursuant to the securities purchase agreement (June 3, 2020 SPA) from the June 3, 2020 registered direct offering (June 3, 2020 Offering), $6 as of March 31,

6


ITERUM THERAPEUTICS PLC

Notes to Unaudited Condensed Consolidated Financial Statements
(In thousands, except share and per share data)

 

2023 relating to the warrants issued on July 2, 2020 pursuant to the securities purchase agreement (June 30, 2020 SPA) from the June 30, 2020 registered direct offering (June 30, 2020 Offering) and $11 as of March 31, 2023 relating to warrants issued in the underwritten offering in October 2020 (October 2020 Offering). These restricted cash amounts are unchanged from December 31, 2022. On the closing date of each of the registered direct offerings in June 2020 (June 3 Offering) and July 2020 (June 30 Offering) and the underwritten offering in the October 2020 Offering, each investor deposited $0.01 per warrant issued being the nominal value of the underlying ordinary share represented by each warrant. This amount will be held in trust by the Company pending a decision by the relevant investor to exercise the warrant by means of a “cashless exercise” pursuant to the terms of the warrant, in which case the $0.01 will be used to pay up the nominal value of the ordinary share issued pursuant to the warrant. Upon the exercise of the warrants other than by means of a "cashless exercise", the amount held in trust will be returned to the relevant investor in accordance with the terms of the applicable purchase agreement or prospectus.

Concentration of Credit Risk

Financial instruments that potentially expose the Company to concentrations of credit risk consist primarily of cash and cash equivalents and short-term investments. The Company has most of its cash, cash equivalents and short-term investments at four accredited financial institutions in the United States and Ireland, in amounts that exceed federally insured limits. The Company does not believe that it is subject to unusual credit risk beyond the normal credit risk associated with commercial banking relationships.

Net Loss Per Ordinary Share

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

 

 

Three Months Ended

 

 

 

March 31, 2023

 

 

March 31, 2022

 

Options to purchase ordinary shares

 

 

1,213,091

 

 

 

1,081,800

 

Unvested restricted share units

 

 

89,439

 

 

 

82,434

 

Warrants

 

 

480,186

 

 

 

480,186

 

Exchangeable Notes

 

 

1,352,340

 

 

 

1,234,962

 

Total

 

 

3,135,056

 

 

 

2,879,382

 

 

Segment and Other Information

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

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

 

 

Three Months Ended March 31,

 

Operating expenses

 

2023

 

 

2022

 

Ireland

 

$

7,068

 

 

$

4,549

 

U.S.

 

 

1,440

 

 

 

2,811

 

Bermuda

 

 

22

 

 

 

13

 

Total

 

$

8,530

 

 

$

7,373

 

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

 

Long-lived assets

 

March 31, 2023

 

 

December 31, 2022

 

Ireland

 

$

3,565

 

 

$

4,052

 

U.S.

 

 

275

 

 

 

303

 

Total

 

$

3,840

 

 

$

4,355

 

 

Recent Accounting Pronouncements

From time to time, new accounting pronouncements are issued by the FASB or other standard setting bodies and adopted by the Company as of the specified effective date. Unless otherwise discussed, the Company believes that the impact of recently issued standards that are not yet effective will not have a material impact on its financial position or results of operations upon adoption.

7


ITERUM THERAPEUTICS PLC

Notes to Unaudited Condensed Consolidated Financial Statements
(In thousands, except share and per share data)

 

In June 2016 the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, or ASU 2016-13. The FASB subsequently issued amendments to ASU 2016-13, which have the same effective date and transition date of January 1, 2023. These standards require that credit losses be reported using an expected losses model rather than the incurred losses model that is currently used, and establishes additional disclosures related to credit risks. For available-for-sale debt securities with unrealized losses, these standards now require allowances to be recorded instead of reducing the amortized cost of the investment. These standards limit the amount of credit losses to be recognized for available-for-sale debt securities to the amount by which carrying value exceeds fair value and requires the reversal of previously recognized credit losses if fair value increases. Based on the composition of our investment portfolio, current market conditions and historical credit loss activity, the Company does not expect the adoption of these standards to have a material effect on the Company’s condensed consolidated balance sheet, condensed consolidated statement of operations and comprehensive loss and related disclosures.

3. Fair Value of Financial Assets and Liabilities

The following table presents information about the Company’s financial assets that were carried at fair value on a recurring basis on the condensed consolidated balance sheet as of March 31, 2023 and December 31, 2022 and indicates the fair value hierarchy of the valuation inputs utilized to determine such fair value.

 

March 31, 2023

 

 

 

 

 

 

 

 

 

 

 

 

Assets

 

Total

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

Short-term investments:

 

 

 

 

 

 

 

 

 

 

 

 

  Corporate bonds

 

$

6,324

 

 

$

 

 

$

6,324

 

 

$

 

  Commercial paper

 

 

13,787

 

 

 

 

 

 

13,787

 

 

 

 

  U.S. Treasury bonds

 

 

14,881

 

 

 

 

 

 

14,881

 

 

 

 

 

 

$

34,992

 

 

$

 

 

$

34,992

 

 

$

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2022

 

 

 

 

 

 

 

 

 

 

 

 

Assets

 

Total

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

Short-term investments:

 

 

 

 

 

 

 

 

 

 

 

 

  Corporate bonds

 

$

7,781

 

 

$

 

 

$

7,781

 

 

$

 

  Commercial paper

 

 

15,232

 

 

 

 

 

 

15,232

 

 

 

 

  U.S. Treasury bonds

 

 

16,699

 

 

 

 

 

 

16,699

 

 

 

 

 

 

$

39,712

 

 

$

 

 

$

39,712

 

 

$

 

 

See Note 4 for details on the short-term investments. The carrying amounts reported in the condensed consolidated balance sheets for prepaid expenses and other current assets, accounts payable, accrued expenses and other current liabilities approximate their fair value based on the short-term maturity of these instruments.

8


ITERUM THERAPEUTICS PLC

Notes to Unaudited Condensed Consolidated Financial Statements
(In thousands, except share and per share data)

 

The following table presents information about the Company’s Exchangeable Notes, derivative liability and RLNs and indicates the fair value hierarchy of the valuation inputs utilized to determine the approximate fair value:

 

March 31, 2023

 

Book

 

 

Approximate

 

 

 

 

 

 

 

 

 

 

Liabilities

 

Value

 

 

Fair Value

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

Exchangeable Notes

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Long-term exchangeable note

 

$

10,877

 

 

$

11,379

 

 

$

 

 

$

11,379

 

 

$

 

Derivative liability - exchange option and change of control

 

 

187

 

 

 

187

 

 

 

 

 

 

 

 

 

187

 

Revenue Futures

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Royalty-linked notes

 

 

19,258

 

 

 

19,258

 

 

 

 

 

 

 

 

 

19,258

 

Total

 

$

30,322

 

 

$

30,824

 

 

$

 

 

$

11,379

 

 

$

19,445

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2022

 

Book

 

 

Approximate

 

 

 

 

 

 

 

 

 

 

Liabilities

 

Value

 

 

Fair Value

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

Exchangeable Notes

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Long-term exchangeable note

 

$

10,094

 

 

$

10,827

 

 

$

 

 

$

10,827

 

 

$

 

Derivative liability - exchange option and change of control

 

 

196

 

 

 

196

 

 

 

 

 

 

 

 

 

196

 

Revenue Futures

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Royalty-linked notes

 

 

18,372

 

 

 

18,372

 

 

 

 

 

 

 

 

 

18,372

 

Total

 

$

28,662

 

 

$

29,395