ITERUM THERAPEUTICS PLC You should read the following discussion and analysis of our financial condition
and results of operations together with our consolidated financial statements
and the related notes and the other financial information included elsewhere in
this Annual Report on Form 10-K. Some of the information contained in this
discussion and analysis or set forth elsewhere in this Annual Report on Form
10-K, including information with respect to our plans and strategy for our
business and related financing, includes forward-looking statements that involve
risks and uncertainties. As a result of many factors, including those factors
set forth in the "Risk Factors" section of this Annual Report on Form 10-K, our
actual results could differ materially from the results described in or implied
by the forward-looking statements contained in the following discussion and
analysis. Unless otherwise stated herein, all ordinary shares, exchange rates
for the Exchangeable Notes, equity awards, warrants and per share amounts have
been adjusted to reflect the 1-for-15 reverse share split which became effective
on
Overview
We are a clinical stage pharmaceutical company dedicated to developing and
commercializing sulopenem to be potentially the first oral branded penem
available in
During the third quarter of 2018, we initiated three clinical trials in our
Phase 3 development program which included: a Phase 3 uncomplicated urinary
tract infection (uUTI) clinical trial, known as Sulopenem for Resistant
Enterobacteriaceae (SURE) 1, comparing oral sulopenem to oral ciprofloxacin in
women with uUTI, a Phase 3 complicated urinary tract infection (cUTI) clinical
trial known as SURE 2, comparing IV sulopenem followed by oral sulopenem to IV
ertapenem followed by oral ciprofloxacin in adults with cUTI and a Phase 3
complicated intra-abdominal infection (cIAI) clinical trial known as SURE 3,
comparing IV sulopenem followed by oral sulopenem to IV ertapenem followed by a
combination of oral ciprofloxacin and oral metronidazole in adults with cIAI. We
designed one Phase 3 clinical trial in each indication based on our end of Phase
2 meeting with the
Since our inception, we have incurred significant operating losses. Our ability to generate product revenue sufficient to achieve profitability will depend heavily on the successful development and eventual commercialization of oral sulopenem and sulopenem. As
95
--------------------------------------------------------------------------------
of
Until such time as we can obtain marketing approval for oral sulopenem, sulopenem or any future product candidate and generate significant revenue from product sales, if ever, we expect to finance our operations through a combination of equity offerings, debt financings, collaboration agreements, other third-party funding, strategic alliances, licensing arrangements, marketing and distribution arrangements or government funding. We may be unable to raise additional funds or enter into such other agreements or arrangements when needed on favorable terms, or at all. If we fail to raise capital or enter into such agreements as, and when, needed, we may have to significantly delay, scale back or discontinue the development and commercialization of our sulopenem program, or otherwise change our strategy.
Because of the numerous risks and uncertainties associated with product development, we are unable to predict the timing or amount of increased expenses or when or if we will be able to achieve or maintain profitability. Even if we are able to generate product sales, we may not become profitable. If we fail to become profitable or are unable to sustain profitability on a continuing basis, then we may be unable to continue our operations at planned levels and be forced to reduce or terminate our operations.
As of
We are currently evaluating our corporate, strategic, financial and financing alternatives, with the goal of maximizing value for our stakeholders while prudently managing our remaining resources. These alternatives could potentially include the licensing, sale or divestiture of our assets or proprietary technologies, a sale of our company, a merger or other business combination or another strategic transaction involving us. 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.
Components of Our Results of Operations
Operating Expenses
Research and Development Expenses
Research and development expenses consist primarily of costs incurred in connection with the development of our sulopenem program, which include:
•
expenses incurred under agreements with contract research organizations (CROs), contract manufacturing organizations (CMOs), as well as investigative sites and consultants that conduct our clinical trials, preclinical studies and other scientific development services;
•
manufacturing scale-up expenses and the cost of acquiring and manufacturing preclinical and clinical trial materials and commercial materials, including manufacturing validation batches;
•
employee-related expenses, including salaries, related benefits, travel and share-based compensation expense for employees engaged in research and development functions;
•
costs related to compliance with regulatory requirements, including the preparation and support of regulatory filings;
•
facilities costs, depreciation, amortization and other expenses, which include rent under operating lease agreements and utilities; and
•
payments made in cash, equity securities or other forms of consideration under third-party licensing agreements.
96
--------------------------------------------------------------------------------
We expense research and development costs as incurred. Advance payments we make for goods or services to be received in the future for use in research and development activities are recorded as prepaid expenses. We recognize external development costs based on an evaluation of the progress to completion of specific tasks using information provided to us by our service providers.
The successful development and commercialization of oral sulopenem and/or sulopenem is highly uncertain. At this time, we cannot reasonably estimate or know the nature, timing and costs of the efforts that will be necessary to complete the clinical development of our sulopenem program or when, if ever, material net cash inflows may commence from any of our product candidates. This uncertainty is due to the numerous risks and uncertainties associated with product development and commercialization, including the uncertainty of:
•
the scope, progress, outcome and costs of our clinical trials and other research and development activities;
•
successful patient enrollment in, and the initiation and completion of, clinical trials;
•
our ability to apply for regulatory approval, including the potential resubmission of our NDA for oral sulopenem, and the timing or likelihood of any such filings and approvals;
•
the timing, receipt and terms of any marketing approvals from applicable regulatory authorities;
•
establishing commercial manufacturing capabilities or making arrangements with third-party manufacturers;
•
development and timely delivery of commercial drug formulations (i) that can be used in our clinical trials and (ii) that are available for commercial launch;
•
obtaining, maintaining, defending and enforcing patent claims and other intellectual property rights;
•
significant and changing government regulation;
•
launching commercial sales of our product candidates, if and when approved, whether alone or in collaboration with others; and
•
maintaining a continued acceptable safety profile of the product candidates following approval.
97
--------------------------------------------------------------------------------
We may never succeed in achieving regulatory approval for any of our product
candidates. For example, in the results of our cIAI clinical trial, sulopenem
did not meet the primary endpoint of statistical non-inferiority compared to the
control therapy for the cIAI trial. In the second quarter of 2020, we announced
the results of our Phase 3 clinical trials of sulopenem for the treatment of
cUTI and uUTI. In the cUTI trial, sulopenem did not meet the primary endpoint of
statistical non-inferiority compared to the control therapies with the
difference in response rates driven almost entirely by higher rates of
asymptomatic bacteriuria on the sulopenem IV to oral sulopenem arm relative to
the ertapenem IV to oral ciprofloxacin arm, only evident at the test of cure
visit; the rates of patients receiving additional antibiotics or with residual
cUTI symptoms were similar between therapies. Similarly, in the uUTI trial,
sulopenem did not meet the primary endpoint of statistical non-inferiority
compared to ciprofloxacin in the population of patients with baseline pathogens
susceptible to ciprofloxacin driven to a large degree by a greater amount of
asymptomatic bacteriuria in the sulopenem treated patients at the test of cure
visit relative to those receiving ciprofloxacin. However, in the uUTI trial, in
the population of patients with baseline pathogens resistant to quinolones,
sulopenem achieved the related primary endpoint by demonstrating statistical
significance in the overall response rate by treatment arm in the
ciprofloxacin-resistant population, providing evidence of a treatment effect in
patients with uUTI. Notwithstanding failure to meet the endpoints described
above, in all three Phase 3 clinical trials, at all timepoints measured, the
clinical response to sulopenem and/or oral sulopenem was similar to the
comparator regimen (non-inferior), except in the instance of the quinolone
non-susceptible population in the Phase 3 uUTI trial in which oral sulopenem was
statistically superior. Based on discussions with the FDA at a pre-NDA meeting
in
General and Administrative Expenses
General and administrative expenses consist primarily of salaries, related benefits and share-based compensation expense for personnel in executive, finance, market research and administrative functions. General and administrative expenses also include director compensation, travel expenses, insurance, professional fees for legal, patent, consulting, accounting and audit services, pre-commercialization activities and market preparation expenses.
Following receipt of the CRL in the third quarter of 2021, in order to reduce operating expenses and conserve cash resources, we halted any remaining pre-commercial activities for oral sulopenem and plan to limit spending to essential costs required in connection with the potential resubmission of the NDA. If and when we believe regulatory approval of oral sulopenem and/or sulopenem appears likely, we anticipate an increase in payroll and expenses as a result of our preparation for commercial operations.
Interest Expense, Net
Interest expense, net consists of interest accrued and amortization of debt
costs with respect to the 6.500% Exchangeable Senior Subordinated Notes due 2025
(Exchangeable Notes) and Limited Recourse Royalty-Linked Subordinated Notes
(RLNs) issued in 2020 (through
Financing Transaction Costs
Financing transaction costs consist of the portion of transaction costs incurred
in relation to the private placement completed in
Adjustments to Fair Value of Derivatives
98
--------------------------------------------------------------------------------
Derivative liabilities are revalued at each balance sheet date and the change in fair value during the reporting period is recorded in the consolidated statements of operations as adjustments to fair value of derivatives.
Other Income, Net
Other income, net consists of realized and unrealized foreign currency gains and losses incurred in the normal course of business based on movement in the applicable exchange rates and sub-lease income from a sub-lease agreement for a commercial unit.
Provision for Income Taxes
We recognize income taxes under the asset and liability method. Deferred income
taxes are recognized for differences between the financial reporting and tax
bases of assets and liabilities at enacted statutory tax rates in effect for the
years in which the differences are expected to reverse. The effect on deferred
taxes of a change in tax rates is recognized in income in the period that
includes the enactment date. In evaluating our ability to recover our deferred
tax assets, we consider all available positive and negative evidence including
past operating results, the existence of cumulative income in the most recent
fiscal years, changes in the business in which we operate and our forecast of
future taxable income. In determining future taxable income, we are responsible
for assumptions utilized including the amount of Irish,
Valuation allowances are provided if it is more likely than not that some portion or all of the deferred tax assets will not be realized. We account for uncertain tax positions using a more-likely-than-not threshold for recognizing and resolving uncertain tax positions. The evaluation of uncertain tax positions is based on factors including, but not limited to, changes in tax law, the measurement of tax positions taken or expected to be taken in tax returns, the effective settlement of matters subject to audit, new audit activity and changes in facts or circumstances related to a tax position. We evaluate our tax positions on a quarterly basis. We also accrue for potential interest and penalties related to unrecognized tax benefits in income tax expense.
Critical Accounting Policies and Significant Judgments and Estimates
Our consolidated financial statements are prepared in accordance with generally
accepted accounting principles in
While our significant accounting policies are described in more detail in Note 2 to our consolidated financial statements appearing elsewhere in this Annual Report on Form 10-K, we believe that the following accounting policies are those most critical to the judgments and estimates used in the preparation of our consolidated financial statements.
As part of the process of preparing our consolidated financial statements, we are required to estimate our accrued research and development expenses. This process involves reviewing open contracts and purchase orders, communicating with our personnel to identify services that have been performed on our behalf and estimating the level of service performed and the associated cost incurred for the service when we have not yet been invoiced or otherwise notified of actual costs. The majority of our service providers invoice us in arrears for services performed, on a pre-determined schedule or when contractual milestones are met; however, some require advanced payments. We make estimates of our accrued expenses as of each balance sheet date in the consolidated financial statements based on facts and circumstances known to us at that time. We periodically confirm the accuracy of these estimates with the service providers and make adjustments if necessary. Examples of estimated accrued research and development expenses include fees paid to:
•
vendors, including central laboratories, in connection with preclinical development activities;
•
CROs and investigative sites in connection with preclinical studies and clinical trials; and
•
CMOs in connection with drug substance and drug product formulation of preclinical and clinical trial materials.
99
--------------------------------------------------------------------------------
We base our expenses related to preclinical studies and clinical trials on our estimates of the services received and efforts expended pursuant to quotes and contracts with multiple research institutions and CROs that conduct and manage preclinical studies and clinical trials on our behalf. The financial terms of these agreements are subject to negotiation, vary from contract to contract and may result in uneven payment flows. There may be instances in which payments made to our vendors will exceed the level of services provided and result in a prepayment of the expense. Payments under some of these contracts depend on factors such as the successful enrollment of patients and the completion of clinical trial milestones. In accruing service fees, we estimate the time period over which services will be performed and the level of effort to be expended in each period. If the actual timing of the performance of services or the level of effort varies from the estimate, we adjust the accrual or the amount of prepaid expenses accordingly. Although we do not expect our estimates to be materially different from amounts actually incurred, our understanding of the status and timing of services performed relative to the actual status and timing of services performed may vary and may result in reporting amounts that are too high or too low in any particular period. To date, there have not been any material adjustments to our prior estimates of accrued research and development expenses.
Share-Based Compensation
We measure share options and other share-based awards granted to employees and directors with service based vesting conditions only based on the fair value on the date of grant using the Black-Scholes option-pricing model. Compensation expense of those awards is recognized over the requisite service period, which is generally the vesting period of the respective award, using the straight-line method.
We measure share-based awards granted to employees and directors with both performance and service based vesting conditions based on the fair value on the date of grant using the Monte Carlo simulation model. Compensation expense of those awards is recognized over the determined vesting period, the period over which all the specified vesting conditions are to be satisfied, using the straight-line method.
For awards granted to consultants and non-employees, compensation expense is recognized over the period during which services are rendered until completed. At the end of each financial reporting period prior to completion of the service, the fair value of these awards is remeasured using the then-current fair value of our ordinary shares and updated assumption inputs in the Black-Scholes option-pricing model or the Monte Carlo simulation model.
We classify share-based compensation expense in the consolidated statement of operations and comprehensive loss in the same manner in which the award recipient's payroll costs are classified or in which the award recipient's service payments are classified.
The Black-Scholes option-pricing model uses key inputs and assumptions including the expected term of the option, share price volatility, risk-free interest rate, dividend yield, share price and exercise price which is equivalent to closing market value on the date of grant. Many of the assumptions require significant judgment and any changes could have a material impact in the determination of share-based compensation expense.
The Monte Carlo simulation model uses key inputs and assumptions including share price volatility, risk-free interest rate, the expected date of satisfaction of vesting conditions and share price. Many of the assumptions require significant judgment and any changes could have a material impact in the determination of share-based compensation expense.
We have elected to account for forfeitures as they occur.
Derivative Liability
We account for derivative instruments in accordance with Accounting Standard Codification (ASC) 815, Derivatives and Hedging - Contracts in Entity's Own Equity, which establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other financial instruments or contracts which require bifurcation and measurement at fair value for accounting purposes on the balance sheet date. Any liabilities recorded at fair value are revalued each reporting period with the resulting change in fair value reflected in the consolidated statements of operations as adjustments to fair value of derivatives.
In determining the appropriate fair values, we use the binomial option pricing model, and in the case of the change of control component, in combination with a discounted cash flow (DCF) analysis. Our derivative financial instruments consist of embedded features in the Exchangeable Notes. The embedded derivatives include provisions that provide the noteholder with certain exchange rights and protections on a fundamental change such as a change of control. The effects of interactions between embedded derivatives are calculated and accounted for in arriving at the overall fair value of the financial instruments.
100
--------------------------------------------------------------------------------
The binomial option-pricing model uses certain key inputs and assumptions including share price and share price volatility, the exchange rate, risk-free interest rate and dividend yield. Many of the assumptions require significant judgment and any changes could have a material impact in the determination of the derivative liability balances.
Royalty-Linked Notes
On recognition, the RLNs qualified as debt instruments under ASC 470, Debt, and
were initially recorded at fair value, applying a DCF model, and then
subsequently measured at amortized cost. In
The RLN liability is carried at fair value on the consolidated balance sheets and determined using a DCF analysis. The key inputs and assumptions used in the DCF model at each reporting date include the terms of the indenture governing the RLNs, probability of regulatory approval of sulopenem, royalty payments based on estimated sales volumes and the discount rate. These assumptions require significant judgment and any changes could have a material impact in the determination of revaluation of the RLNs at each reporting date.
Results of Operations
Comparison of the Years Ended
The following table summarizes our operating loss and loss before income tax for
the years ended
Year Ended December 31,
2022 2021 Change
(In thousands)
Operating expenses:
Research and development $ (17,617 ) $ (10,712 ) $ (6,905 )
General and administrative (12,766 ) (13,825 ) 1,059
Total operating expenses $ (30,383 ) $ (24,537 ) $ (5,846 )
Operating loss (30,383 ) (24,537 ) (5,846 )
Total other expense (13,750 ) (66,322 ) 52,572
Loss before income taxes $ (44,133 ) $ (90,859 ) $ 46,726 Research and Development Expenses
Year Ended December 31,
2022 2021 Change
(In thousands)
CRO and other preclinical and clinical trial
expenses $ 9,374 $ 2,153 $ 7,221
Personnel related (including share-based
compensation) 4,446 2,630 1,816
Chemistry, manufacturing and control (CMC)
related expenses 2,642 2,981 (339 )
Consulting fees 1,155 2,948 (1,793 )
Total research and development expenses
The increase in CRO and other preclinical and clinical trial expenses of
General and Administrative Expenses
101
--------------------------------------------------------------------------------
Year Ended December 31,
2022 2021 Change
(In thousands)
Personnel related (including share-based
compensation) $ 6,153 $ 4,870 $ 1,283
Facility related and other 3,527 3,416 111
Professional and consultant fees 3,086 5,539 (2,453 )
Total general and administrative expenses
Personnel related expenses increased by
The following table summarizes our total other expense for the years ended
Year Ended December 31,
2022 2021 Change
(In thousands)
Interest expense, net $ (2,361 ) $ (5,553 ) $ 3,192
Adjustments to fair value of derivatives 5,458 (60,964 ) 66,422
Cancellation of share options (17,350 ) - (17,350 )
Other income, net 503 195 308
Total other expense $ (13,750 ) $ (66,322 ) $ 52,572
Interest Expense, Net
Interest expense, net decreased by
Adjustments to Fair Value of Derivatives
Adjustments to the fair value of the Derivative liability were
Cancellation of Share Options
On
Other Income, Net
Other income, net consists of realized and unrealized foreign currency gains incurred in the normal course of business based on movement in the applicable exchange rates and sub-lease income from a sub-lease agreement for a commercial unit.
102
--------------------------------------------------------------------------------
Comparison of the Years Ended
The following table summarizes our operating loss and loss before tax for the
years ended
Year Ended December 31,
2021 2020 Change
(In thousands)
Operating expenses:
Research and development $ (10,712 ) $ (21,074 ) $ 10,362
General and administrative (13,825 ) (11,052 ) (2,773 )
Total operating expenses $ (24,537 ) $ (32,126 ) $ 7,589
Operating loss (24,537 ) (32,126 ) 7,589
Total other expense (66,322 ) (19,137 ) (47,185 )
Loss before income taxes $ (90,859 ) $ (51,263 ) $ (39,596 ) Research and Development Expenses
Year Ended December 31,
2021 2020 Change
(In thousands)
CRO and other preclinical and clinical trial
expenses $ 2,153 $ 9,881 $ (7,728 )
Personnel related (including share-based
compensation) 2,630 4,682 (2,052 )
Chemistry, manufacturing and control (CMC)
related expenses 2,981 3,031 (50 )
Consulting fees 2,948 3,480 (532 )
Total research and development expenses
The decrease in CRO and other preclinical and clinical trial expenses of
General and Administrative Expenses
Year Ended December 31,
2021 2020 Change
(In thousands)
Personnel related (including share-based
compensation) $ 4,870 $ 5,433 $ (563 )
Facility related and other 3,416 3,141 275
Professional and consultant fees 5,539 2,478 3,061
Total general and administrative expenses
Personnel related expenses decreased by
The following table summarizes our total other expense for the years ended
Year Ended December 31,
2021 2020 Change
(In thousands)
Interest expense, net $ (5,553 ) $ (15,097 ) $ 9,544
Financing transaction costs - (2,848 ) 2,848
Adjustments to fair value of derivatives (60,964 ) (1,745 ) (59,219 )
Extinguishment of debt - 340 (340 )
Other income, net 195 213 (18 )
Total other expense $ (66,322 ) $ (19,137 ) $ (47,185 )
103--------------------------------------------------------------------------------
Interest Expense, Net
Interest expense, net decreased by
Financing Transaction Costs
Financing transaction costs, which include costs expensed on recognition of the
Derivative liability, were
Adjustments to Fair Value of Derivatives
Adjustments to the fair value of the Derivative liability were
Extinguishment of Debt
In
Other Income, Net
Other income, net consists of realized and unrealized foreign currency gains incurred in the normal course of business based on movement in the applicable exchange rates and sub-lease income from a sub-lease agreement for a commercial unit.
Liquidity and Capital Resources
Since our inception, we have incurred significant operating losses and negative
cash flows from our operations. We have generated limited revenue to date from a
funding arrangement with the Trustees of
On
As of
104
--------------------------------------------------------------------------------
Secured credit facility
On
Required monthly amortization payments for the initial
In connection with the initial
In connection with the Private Placement, Iterum Bermuda was joined as a party to the Loan and Security Agreement as a borrower and the Loan and Security Agreement was amended to, among other things, modify the definition of subordinated debt to include the RLNs and Exchangeable Notes.
2025 Exchangeable Notes and Royalty-Linked Notes
On
Registered Direct Offerings
On
105
--------------------------------------------------------------------------------
On
On
October Offering
On
On
Payment Protection Program
106
--------------------------------------------------------------------------------
In
On
Cash Flows
The following table summarizes our cash flows for each of the periods presented:
Year Ended December 31,
2022 2021 2020
(In thousands)
Net cash used in operating activities $(18,473) $(15,842) $(54,528)
Net cash provided by / (used in) investing
activities 13,957 (54,595) (11)
Net cash (used in) / provided by financing
activities (1,818) 83,127 64,475
Effect of exchange rates on cash and cash
equivalents (50) 4 (11)
Net (decrease) / increase in cash, cash
equivalents and restricted cash $(6,384) $12,694 $9,925 Operating Activities
During the year ended
During the year ended
During the year ended
Investing Activities
During the year ended
Financing Activities
During the year ended
107
--------------------------------------------------------------------------------
from the exercise of warrants, partially offset by principal repayments of
Funding Requirements
We expect to continue to incur significant expenses and increasing operating losses as we seek potential marketing approval for oral sulopenem, resume any pre-commercialization activities and pursue the development of our sulopenem program in additional indications through preclinical and clinical development. Our expenses will also increase substantially if and as we:
•
conduct additional clinical trials for oral sulopenem and/or sulopenem, which includes our REASSURE trial being conducted to support potential resubmission of our NDA for oral sulopenem;
•
initiate other studies as part of our sulopenem program, some of which may be required for regulatory approval of our product candidates and/or may be conducted in response to the CRL;
•
establish sales, marketing and distribution capabilities either directly or
through a third-party, to commercialize oral sulopenem and/or sulopenem in
•
establish manufacturing and supply chain capacity sufficient to provide commercial quantities of oral sulopenem and/or sulopenem, if we obtain marketing approval and undertake commercialization activities;
•
pursue the development of our sulopenem program in additional indications;
•
maintain, expand, defend and protect our intellectual property portfolio;
•
hire additional clinical, scientific and commercial personnel;
•
add operational, financial and management information systems and personnel, including personnel to support our product development and planned future commercialization efforts; and
•
acquire or in-license other product candidates or technologies.
Because of the numerous risks and uncertainties associated with research, development and commercialization of pharmaceutical product candidates, we are unable to estimate the exact amount of our working capital requirements. Our future funding requirements, both short-term and long-term, will depend on many factors, including:
•
the timing and costs of our clinical trials of oral sulopenem and sulopenem, including any clinical trials or non-clinical studies which may be required for regulatory approval of our product candidates, including our REASSURE trial being conducted in response to the CRL and to support a potential resubmission of the NDA for approval of oral sulopenem;
•
any other activities that may be required in connection with the potential resubmission of the NDA for oral sulopenem;
•
the timing of regulatory filings including a potential resubmission of the NDA for oral sulopenem;
•
the timing of regulatory review and potential approval of any product candidates, including oral sulopenem for the treatment of uUTI;
•
the initiation, progress, timing, costs and results of preclinical studies and clinical trials of other potential product candidates and of our current product candidates in additional indications;
•
the amount of funding that we receive under government awards that we may apply for in the future;
•
the number and characteristics of product candidates that we pursue;
•
the outcome, timing and costs of seeking regulatory approvals;
•
the costs of commercialization activities for oral sulopenem and/or sulopenem and other product candidates if we receive marketing approval, including the costs and timing of establishing product sales, marketing, distribution and manufacturing capabilities;
•
the receipt of marketing approval and revenue received from any potential commercial sales of oral sulopenem and/or sulopenem;
•
the terms and timing of any future collaborations, licensing or other arrangements that we may establish;
108
--------------------------------------------------------------------------------
•
the amount and timing of any payments we may be required to make, or that we may receive, in connection with the licensing, filing, prosecution, defense and enforcement of any patents or other intellectual property rights, including milestone and royalty payments and patent prosecution fees that we are obligated to pay pursuant to an exclusive license agreement with Pfizer Inc. (Pfizer) (the Pfizer License) or other future license agreements;
•
the amount and timing of any payments we may be required to make in connection with the RLNs and the repayment of the Exchangeable Notes, if required;
•
the costs of preparing, filing and prosecuting patent applications, maintaining and protecting our intellectual property rights and defending against any intellectual property related claims;
•
the costs of operating as a public company;
•
the extent to which we in-license or acquire other products and technologies; 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.
Until such time, if ever, that we can generate product revenue sufficient to achieve profitability, we expect to finance our cash needs through a combination of public or private equity offerings, debt financings, collaboration agreements, other third-party funding, strategic alliances, licensing arrangements, marketing and distribution arrangements or government funding. To the extent that we raise additional capital through the sale of equity or convertible debt securities, our shareholders' ownership interest will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our ordinary shareholders. Debt financing and preferred equity financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. The RLNs, the Exchangeable Notes and the investor rights agreement we entered into in connection with the Private Placement each impose operating and other restrictions on us. Such restrictions affect, and in many cases limit or prohibit, our ability to dispose of certain assets, pay dividends, incur additional indebtedness, undergo a change of control and enter into certain collaborations, strategic alliances or other similar partnerships, among other things. If we raise additional funds through other third-party funding, collaboration agreements, strategic alliances, licensing arrangements or marketing and distribution arrangements, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates or grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds through equity or debt financings when needed, we may be required to delay, limit, reduce or terminate our product development or future commercialization efforts or grant rights to develop and market products or product candidates that we would otherwise prefer to develop and market ourselves. In addition, as described above, we are evaluating our corporate, strategic, financial and financing alternatives, with the goal of maximizing value for our stakeholders while prudently managing our remaining resources.
Contractual Obligations and Commitments
Under the Pfizer License, we have agreed to make certain regulatory and sales milestone payments and are obligated to make a potential one-time payment related to sublicensing income that exceeds a certain threshold. We are obligated to pay Pfizer royalties ranging from a single-digit to mid-teens percentage based on marginal net sales of each licensed product.
Under the RLN Indenture, holders of RLNs will be entitled to payments based
solely on a percentage of our net revenues from
Our operating lease obligations primarily consist of payments for office space and commercial property, which are described further in Note 8 of our consolidated financial statements included in this Annual Report on Form 10-K. Future contractual payments
109
--------------------------------------------------------------------------------
on operating lease obligations due within one year of
Emerging Growth Company Status
The Jumpstart Our Business Startups Act of 2012 permits an "emerging growth company" such as us to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies until those standards would otherwise apply to private companies. We have irrevocably elected to "opt out" of this provision and, as a result, we will comply with new or revised accounting standards when they are required to be adopted by public companies that are not emerging growth companies.
Off-Balance Sheet Arrangements
We did not have during the periods presented, and we do not currently have, any
off-balance sheet arrangements, as defined in the rules and regulations of the
Recently Issued Accounting Pronouncements
A description of recently issued accounting pronouncements that may potentially impact our financial position and results of operations is disclosed in Note 2 to our consolidated financial statements appearing elsewhere in this Annual Report on Form 10-K.
110
--------------------------------------------------------------------------------
© Edgar Online, source
