View:

Table of Contents

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 10-Q

 

(Mark one)

 

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

 

For the quarterly period ended June 30, 2019

 

Or

 

o              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 001-37558

 

Nabriva Therapeutics plc

(Exact name of registrant as specified in its charter)

 

Ireland

 

Not applicable

(State or other jurisdiction of incorporation or organization)

 

(I.R.S. Employer Identification No.)

 

25-28 North Wall Quay

 

 

IFSC, Dublin 1, Ireland

 

Not applicable

(Address of principal executive offices)

 

(Zip Code)

 

+353 1 649 2000

(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, nominal value $0.01 per share

 

NBRV

 

The Nasdaq Global Market

 

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  x  No  o

 

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  x  No o

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a 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  o

Accelerated filer  x

 

 

 

 

Non-accelerated filer  o

Smaller reporting company  x

 

 

 

 

 

Emerging growth company  x

 

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. x

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule12b-2 of the Exchange Act). Yes  o No x

 

As of July 30, 2019, the registrant had 73,361,410 ordinary shares outstanding.

 

 

 


Table of Contents

 

NABRIVA THERAPEUTICS plc

INDEX TO REPORT ON FORM 10-Q

 

 

 

Page

 

PART I — FINANCIAL INFORMATION

 

 

 

 

Item 1:

Financial Statements

4

 

 

 

 

Consolidated Balance Sheets as of December 31, 2018 and June 30, 2019 (unaudited)

4

 

 

 

 

Consolidated Statements of Operations for the Three Months and Six Months Ended June 30, 2018 and 2019 (unaudited)

5

 

 

 

 

Consolidated Statements of Changes in Stockholders’ Equity for the Three Months And Six Months Ended June 30, 2018 and 2019 (unaudited)

6

 

 

 

 

Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2018 and 2019 (unaudited)

7

 

 

 

 

Notes to the Unaudited Consolidated Financial Statements

8

 

 

 

Item 2:

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

24

 

 

 

Item 3:

Quantitative and Qualitative Disclosures About Market Risk

35

 

 

 

Item 4:

Controls and Procedures

36

 

 

 

 

PART II — OTHER INFORMATION

 

 

 

 

Item 1:

Legal Proceedings

37

 

 

 

Item 1A:

Risk Factors

37

 

 

 

Item 2:

Unregistered Sales of Equity Securities and Use of Proceeds

80

 

 

 

Item 3:

Defaults Upon Senior Securities

80

 

 

 

Item 4:

Mine Safety Disclosures

80

 

 

 

Item 5:

Other Information

80

 

 

 

Item 6:

Exhibits

81

 

 

 

SIGNATURES

82

 

1


Table of Contents

 

FORWARD-LOOKING STATEMENTS

 

This Quarterly Report on Form 10-Q contains forward-looking statements that involve substantial risks and uncertainties. All statements contained in this Quarterly Report, other than statements of historical fact, including statements regarding our strategy, future operations, future financial position, future revenues, projected costs, prospects, plans and objectives of management, are forward-looking statements. The words “anticipate, “around” “believe,” “estimate,” “expect,” “intend,” “may,” “plan,” “predict,” “project,” “target,” “potential,” “will,” “would,” “could,” “should,” “continue,” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. The forward-looking statements in this report include, among other things, statements about:

 

·                              the timing of receiving marketing approval of lefamulin, CONTEPO and other product candidates, including the completion of any post-marketing requirements with respect to any marketing approval we may obtain;

 

·                              our ability to resolve the matters set forth in the Complete Response Letter we received from the U.S. Food and Drug Administration, or FDA, in connection with our New Drug Application, or NDA, for CONTEPO for the treatment of complicated urinary tract infections, or cUTIs, including acute pyelonephritis;

 

·                              our expectations regarding how far into the future our cash on hand will fund our ongoing operations;

 

·                              our ability to satisfy interest and principal payments under our debt facility with Hercules Capital, Inc., or Hercules;

 

·                              our ability to comply with the restrictive covenants under our debt facility with Hercules;

 

·                              the potential receipt of revenues from future sales of lefamulin or CONTEPO;

 

·                              our plans to pursue development of lefamulin for additional indications other than community-acquired bacterial pneumonia, or CABP, and of CONTEPO for additional indications other than cUTI;

 

·                              our plans to pursue development of other product candidates;

 

·                               our expectations with respect to the potential financial impact, synergies, growth prospects and benefits of our acquisition of Zavante Therapeutics, Inc., or Zavante, which was completed on July 24, 2018, or the Acquisition, pursuant to the Agreement and Plan of Merger dated July 23, 2018, or the Merger Agreement, by and among Nabriva, Zuperbug Merger Sub I, Inc., or Merger Sub I, Zuperbug Merger Sub II, Inc., or Merger Sub II, Zavante and the Zavante stockholder representative, including the potential realization of the expected benefits from the Acquisition;

 

·                              our expectations with respect to milestone payments pursuant to the Merger Agreement and expectations with respect to potential advantages of CONTEPO or any other product candidate that we acquired in connection with the Acquisition;

 

·                              our ability to successfully integrate Zavante’s operations into our business;

 

·                              our ability to establish and maintain arrangements for manufacture of our product candidates;

 

·                              our sales, marketing and distribution capabilities and strategy;

 

·                              our ability to successfully commercialize lefamulin, CONTEPO and our other product candidates;

 

·                              the potential advantages of lefamulin, CONTEPO and our other product candidates;

 

·                              our estimates regarding the market opportunities for lefamulin, CONTEPO and our other product candidates;

 

·                              the rate and degree of market acceptance and clinical benefit of lefamulin for CABP, CONTEPO for cUTI and our other product candidates;

 

·                              our ability to establish and maintain collaborations in the U.S. or outside the U.S.;

 

·                              the future development or commercialization of lefamulin in the greater China region and Canada;

 

2


Table of Contents

 

·                              the potential benefits under our license agreement with Sinovant Sciences, Ltd., or the Sinovant License Agreement;

 

·                              the potential benefits under our license agreement with Sunovion Pharmaceuticals Canada Inc., or the Sunovion License Agreement;

 

·                              our ability to acquire or in-license additional products, product candidates and technologies;

 

·                              our future intellectual property position;

 

·                              our estimates regarding future expense, capital requirements and needs for additional financing;

 

·                              our ability to effectively manage our anticipated growth;

 

·                              our ability to maintain the level of our expenses consistent with our internal budgets and forecasts;

 

·                              the demand for securities of pharmaceutical and biotechnology companies in general and our ordinary shares in particular;

 

·                              competitive factors;

 

·                              compliance with current or prospective governmental regulation;

 

·                              the costs and outcomes of legal actions and proceedings;

 

·                              general economic and market conditions;

 

·                              our ability to attract and retain qualified employees and key personnel;

 

·                              our business and business relationships, including with employees and suppliers, following the Acquisition;

 

·                              our ability to satisfy milestone, royalty and transaction revenue payments pursuant to the Stock Purchase Agreement between Zavante and SG Pharmaceuticals, Inc.; and

 

·                              other risks and uncertainties, including those described in the ‘‘Risk Factors’’ section of this Form 10-Q.

 

We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements we make.

 

You should refer to the “Risk Factors” section of this Form 10-Q for a discussion of important factors that we believe could cause actual results or events to differ materially from the forward-looking statements that we make. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures or investments we may make. We do not assume any obligation to update any forward-looking statements, except as required by applicable law.

 

Throughout this Quarterly Report on Form 10-Q, unless the context requires otherwise, all references to “Nabriva,” “the Nabriva Group,” “the Company,” “we,” “ours,” “us,” or similar terms refer to Nabriva Therapeutics plc, together with its consolidated subsidiaries.

 

3


Table of Contents

 

PART I

 

ITEM 1.  FINANCIAL STATEMENTS

 

NABRIVA THERAPEUTICS plc

Consolidated Balance Sheets (unaudited)

 

(in thousands, except share data)

 

As of
December 31, 2018

 

As of
June 30, 2019

 

 

 

 

 

 

 

Assets

 

 

 

 

 

Current assets:

 

 

 

 

 

Cash and cash equivalents

 

$

102,003

 

$

58,666

 

Short-term investments

 

225

 

15,253

 

Other receivables

 

3,871

 

4,766

 

Contract asset

 

1,500

 

 

Prepaid expenses

 

1,154

 

1,403

 

Total current assets

 

108,753

 

80,088

 

Property, plant and equipment, net

 

1,139

 

2,761

 

Intangible assets, net

 

98

 

86

 

Long-term receivables

 

428

 

710

 

Total assets

 

$

110,418

 

$

83,645

 

 

 

 

 

 

 

Liabilities and equity

 

 

 

 

 

Current liabilities:

 

 

 

 

 

Accounts payable

 

$

3,304

 

$

2,914

 

Accrued expense and other current liabilities

 

14,502

 

11,202

 

Total current liabilities

 

17,806

 

14,116

 

Non-current liabilities

 

 

 

 

 

Long-term debt

 

23,718

 

24,306

 

Other non-current liabilities

 

264

 

1,818

 

Total non-current liabilities

 

23,982

 

26,124

 

Total liabilities

 

41,788

 

40,240

 

Commitments and contingencies (Note 13)

 

 

 

 

 

Stockholders’ Equity:

 

 

 

 

 

Ordinary shares, nominal value $0.01, 1,000,000,000 ordinary shares authorized at June 30, 2019; 67,019,094 and 72,906,293 issued and outstanding at December 31, 2018 and June 30, 2019, respectively

 

670

 

729

 

Preferred shares, par value $0.01, 100,000,000 shares authorized at June 30, 2019; None issued and outstanding

 

 

 

Additional paid in capital

 

461,911

 

478,551

 

Accumulated other comprehensive income

 

27

 

27

 

Accumulated deficit

 

(393,978

)

(435,902

)

Total stockholders’ equity

 

68,630

 

43,405

 

Total liabilities and stockholders’ equity

 

$

110,418

 

$

83,645

 

 

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

 

4


Table of Contents

 

NABRIVA THERAPEUTICS plc

Consolidated Statements of Operations (unaudited)

 

 

 

Three Months Ended

 

Six Months Ended

 

 

 

June 30,

 

June 30,

 

(in thousands, except share and per share data)

 

2018

 

2019

 

2018

 

2019

 

Revenues:

 

 

 

 

 

 

 

 

 

Collaboration revenue

 

$

 

$

 

$

6,500

 

$

1,000

 

Research premium and grant revenue

 

847

 

525

 

1,898

 

1,228

 

Total revenue

 

847

 

525

 

8,398

 

2,228

 

Operating expenses:

 

 

 

 

 

 

 

 

 

Research and development

 

(9,717

)

(8,074

)

(19,996

)

(15,612

)

General and administrative

 

(8,837

)

(13,427

)

(18,973

)

(26,836

)

Total operating expenses

 

(18,554

)

(21,501

)

(38,969

)

(42,448

)

Loss from operations

 

(17,707

)

(20,976

)

(30,571

)

(40,220

)

Other income (expense):

 

 

 

 

 

 

 

 

 

Other income (expense), net

 

(141

)

56

 

(118

)

126

 

Interest income

 

19

 

72

 

28

 

82

 

Interest expense

 

(7

)

(904

)

(11

)

(1,803

)

Loss before income taxes

 

(17,836

)

(21,752

)

(30,672

)

(41,815

)

Income tax benefit (expense)

 

48

 

45

 

(458

)

(109

)

Net loss

 

$

(17,788

)

$

(21,707

)

$

(31,130

)

$

(41,924

)

 

 

 

 

 

 

 

 

 

 

Loss per share

 

 

 

 

 

 

 

 

 

Basic and Diluted ($ per share)

 

$

(0.44

)

$

(0.30

)

$

(0.80

)

$

(0.59

)

 

 

 

 

 

 

 

 

 

 

Weighted average number of shares:

 

 

 

 

 

 

 

 

 

Basic and Diluted

 

40,515,920

 

72,526,441

 

38,723,718

 

70,624,583

 

 

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

 

5


Table of Contents

 

NABRIVA THERAPEUTICS plc

Consolidated Statements of Changes in Stockholders’ Equity (unaudited)

 

 

 

Ordinary Shares

 

 

 

Accumulated

 

 

 

 

 

 

 

Number

 

 

 

Additional

 

other

 

 

 

Total

 

 

 

of

 

 

 

paid in

 

comprehensive

 

Accumulated

 

Stockholders’

 

(in thousands)

 

shares

 

Amount

 

capital

 

income

 

deficit

 

Equity

 

January 1, 2018

 

36,708

 

367

 

$

360,872

 

$

27

 

$

(279,198

)

$

82,068

 

Issuance of common stock

 

3,526

 

35

 

19,353

 

 

 

19,388

 

Equity transaction costs

 

 

 

(916

)

 

 

(916

)

Stock-based compensation expense

 

 

 

1,244

 

 

 

1,244

 

Net loss

 

 

 

 

 

(13,342

)

(13,342

)

March 31, 2018

 

40,234

 

402

 

380,553

 

27

 

(292,540

)

88,442

 

Issuance of common stock

 

725

 

8

 

3,389

 

 

 

3,397

 

Equity transaction costs

 

 

 

(152

)

 

 

(152

)

Stock-based compensation expense

 

 

 

767

 

 

 

767

 

Net loss

 

 

 

 

 

(17,786

)

(17,786

)

June 30, 2018

 

40,959

 

$

410

 

$

384,557

 

$

27

 

$

(310,326

)

$

74,668

 

 

 

 

Ordinary Shares

 

 

 

Accumulated

 

 

 

 

 

 

 

Number

 

 

 

Additional

 

other

 

 

 

Total

 

 

 

of

 

 

 

paid in

 

comprehensive

 

Accumulated

 

Stockholders’

 

(in thousands)

 

shares

 

Amount

 

capital

 

income

 

deficit

 

Equity

 

January 1, 2019

 

67,019

 

$

670

 

$

461,911

 

$

27

 

$

(393,978

)

$

68,630

 

Issuance of common stock

 

4,317

 

43

 

10,014

 

 

 

10,057

 

Equity transaction costs

 

 

 

(270

)

 

 

(270

)

Stock-based compensation expense

 

 

 

1,907

 

 

 

1,907

 

Net loss

 

 

 

 

 

(20,217

)

(20,217

)

March 31, 2019

 

71,336

 

713

 

473,562

 

27

 

(414,195

)

60,107

 

Issuance of common stock

 

1,570

 

16

 

3,691

 

 

 

3,707

 

Equity transaction costs

 

 

 

(523

)

 

 

(523

)

Stock-based compensation expense

 

 

 

1,821

 

 

 

1,821

 

Net loss

 

 

 

 

 

(21,707

)

(21,707

)

June 30, 2019

 

72,906

 

$

729

 

$

478,551

 

$

27

 

$

(435,902

)

$

43,405

 

 

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

 

6


Table of Contents

 

NABRIVA THERAPEUTICS plc

Consolidated Statements of Cash Flows (unaudited)

 

 

 

Six Months Ended
June 30,

 

(in thousands)

 

2018

 

2019

 

Cash flows from operating activities

 

 

 

 

 

Net loss

 

$

(31,130

)

$

(41,924

)

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

 

 

 

 

 

Non-cash other expense, net

 

91

 

(3

)

Non-cash interest income

 

(50

)

28

 

Non-cash interest expense

 

 

371

 

Depreciation and amortization expense

 

262

 

245

 

Amortization of right-of-use assets

 

 

211

 

Stock-based compensation

 

2,011

 

3,728

 

Other, net

 

(5

)

(20

)

Changes in operating assets and liabilities:

 

 

 

 

 

Changes in long-term receivables

 

(3

)

(282

)

Changes in other receivables and prepaid expenses

 

(2,510

)

392

 

Changes in accounts payable

 

(2,241

)

(346

)

Changes in accrued expenses and other liabilities

 

(142

)

(4,106

)

Changes in other non-current liabilities

 

33

 

(52

)

Changes in income tax liabilities

 

324

 

10

 

Net cash used in operating activities

 

(33,360

)

(41,748

)

Cash flows from investing activities

 

 

 

 

 

Purchases of plant and equipment and intangible assets

 

(168

)

(57

)

Purchases of available-for-sale securities

 

 

(15,000

)

Purchases of term deposits

 

(115

)

 

Net cash used in investing activities

 

(283

)

(15,057

)

Cash flows from financing activities

 

 

 

 

 

Proceeds from at the market facility

 

22,784

 

13,592

 

Proceeds from long-term debt

 

410

 

80

 

Proceeds from employee share purchase plan

 

 

170

 

Equity transaction costs

 

(976

)

(414

)

Net cash provided by financing activities

 

22,218

 

13,428

 

 

 

 

 

 

 

Effects of foreign currency translation on cash and cash equivalents

 

(91

)

40

 

Net decrease in cash and cash equivalents

 

(11,516

)

(43,337

)

Cash and cash equivalents at beginning of period

 

86,769

 

102,003

 

Cash and cash equivalents at end of period

 

$

75,253

 

$

58,666

 

 

 

 

 

 

 

Supplemental disclosure of cash flow information

 

 

 

 

 

Interest paid

 

 

1,109

 

Equity transaction costs incurred in prior periods and paid in current period

 

28

 

18

 

Equity transaction costs included in accounts payable and accrued expenses

 

119

 

498

 

 

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

 

7


Table of Contents

 

NABRIVA THERAPEUTICS plc

Notes to the Unaudited Consolidated Financial Statements

(in thousands, except per share data)

 

1.                                      Organization and Business Activities

 

Nabriva Therapeutics plc (“Nabriva Ireland”), together with its wholly owned and consolidated subsidiaries, Nabriva Therapeutics GmbH (“Nabriva Austria”), Nabriva Therapeutics US, Inc., and Nabriva Therapeutics Ireland DAC, (collectively, “Nabriva”, or the “Company”) is a biopharmaceutical company engaged in the development of novel anti-infective agents to treat serious infections. On July 23, 2018, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) for the acquisition of Zavante Therapeutics Inc., (“Zavante”) a biopharmaceutical company focused on developing CONTEPO (fosfomycin for injection). The Company has two product candidates that have been submitted to the U.S. Food and Drug Administration (the “FDA”) for approval: lefamulin, potentially the first pleuromutilin antibiotic available for systemic administration in humans, and CONTEPO, a potentially first-in-class epoxide antibiotic for intravenous (“IV”) administration in the United States. The Company is developing both IV and oral formulations of lefamulin for the treatment of community-acquired bacterial pneumonia (“CABP”). The Company is developing CONTEPO IV for complicated urinary tract infections (“cUTI”) and may potentially develop lefamulin and CONTEPO for additional indications. The Company does not expect to obtain marketing approval for lefamulin before mid-August 2019, if at all. In April 2019, the FDA issued a Complete Response Letter (“CRL”) in connection with the Company’s new drug application (“NDA”) for CONTEPO for the treatment of cUTIs, including acute pyelonephritis, stating that it was unable to approve the application in its current form. The CRL requests that issues related to facility inspections and manufacturing deficiencies at Nabriva’s active pharmaceutical ingredient contract manufacturer be addressed prior to the FDA approving the NDA. The Company requested a “Type A” meeting with the FDA to discuss its findings and this meeting occurred in July 2019.  The Company cannot predict the final outcome of any interactions with the FDA or when CONTEPO will receive marketing approval, if at all. The Company’s headquarters are located at 25-28 North Wall Quay, Dublin, Ireland.

 

Throughout these notes to the consolidated financial statements, unless the context requires otherwise, all references to “Nabriva,” “the Company,” or similar terms refer to Nabriva Therapeutics plc, together with its consolidated subsidiaries.

 

Liquidity

 

Since its inception, the Company has incurred net losses and generated negative cash flows from its operations. To date, it has financed its operations through the sale of equity securities, convertible and term debt financings and research and development support from governmental grants and loans. As of June 30, 2019, the Company had cash, cash equivalents and short-term investments of $73.9 million.

 

The Company follows the provisions of Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 205-40, Presentation of Financial Statements Going Concern (“ASC 205-40”), which requires management to assess the Company’s ability to continue as a going concern for one year after the date the consolidated financial statements are issued.

 

The Company expects to seek additional funding in future periods for purposes of investment in its commercial and medical affairs organization as well as investing in its supply chain, including building active pharmaceutical ingredient safety stock for the commercial supply of lefamulin and CONTEPO, in an effort to enhance the potential commercial launch of lefamulin and CONTEPO. While the Company has raised capital in the past, the ability to raise capital in future periods is not considered probable, as defined under the accounting standards.  As such, under the requirements of ASC 205-40, management may not consider the potential for future capital raises in their assessment of the Company’s ability to meet its obligations for the next twelve months.

 

If the Company is not able to secure adequate additional funding in future periods, the Company may make reductions in certain expenditures.  This may include liquidating assets and suspending or curtailing planned programs. The Company may also have to delay, reduce the scope of, suspend or eliminate one or more research and development programs or its commercialization efforts.

 

The Company’s expenses will increase if it suffers any regulatory delays or is required to conduct additional clinical trials to satisfy regulatory requirements. If the Company obtains marketing approval for lefamulin, CONTEPO or any other product candidate that it develops, it expects to incur significant commercialization expenses related to product sales, marketing, distribution and manufacturing. The Company will continue to invest in critical commercialization and supply chain activities prior to potentially receiving marketing approval and making lefamulin and CONTEPO available to patients.

 

8


Table of Contents

 

NABRIVA THERAPEUTICS plc

Notes to the Unaudited Consolidated Financial Statements (continued)

(in thousands, except per share data)

 

As a result, based on the Company’s available cash resources, the minimum cash required under the Loan and Security Agreement (the “Loan Agreement”) with Hercules Capital, Inc., and in accordance with the requirements of ASC 205-40, management has concluded that substantial doubt exists about the Company’s ability to continue as a going concern for one year from the date these financial statements are issued.  A failure to raise the additional funding or to effectively implement cost reductions could harm the Company’s business, results of operations and future prospects.

 

The Company expects that its existing cash, cash equivalents and short-term investments as of June 30, 2019, proceeds from the sale of ordinary shares under the new Open Market Sales AgreementSM between the Company and Jefferies LLC (“Jefferies”), described below from June 30, 2019 until the date of this filing of $1.6 million, and anticipated research premiums from the Austrian government for its qualified research and development expenditures, will be sufficient to enable the Company to fund its operating expenses, debt service obligations and capital expenditure requirements into the second quarter of 2020. The interim consolidated financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates continuity of operations, the realization of assets and the satisfaction of liabilities and commitments in the normal course of business.

 

In December 2018, the Company entered into a Loan Agreement with Hercules Capital, Inc., pursuant to which a term loan of up to an aggregate principal amount of $75.0 million is available to the Company. The Loan Agreement provides for an initial term loan advance of $25.0 million which was funded in connection with the closing of the Loan Agreement. The remaining $50.0 million under the Loan Agreement is available to the Company from time to time subject to conditions further described in Note 5 below.

 

In March 2018, the Company entered into a Controlled Equity OfferingSM Sales Agreement (the “Cantor ATM Agreement”), with Cantor Fitzgerald & Co. (“Cantor”), pursuant to which, from time to time, the Company could previously offer and sell its ordinary shares having aggregate gross proceeds of up to $50.0 million through Cantor. The Company terminated the Cantor ATM Agreement effective as of June 24, 2019. The Company did not incur any termination penalties as a result of the termination of the Cantor ATM Agreement. As of the effective date of the termination of the Cantor ATM Agreement, the Company had sold and issued an aggregate of 10,316,190 of its ordinary shares pursuant to the Cantor ATM Agreement for aggregate gross proceeds of $37.8 million and net proceeds to the Company of $36.9 million, after deducting commissions and offering expenses payable by the Company. The $12.2 million of ordinary shares that had been available for sale pursuant to the Cantor ATM Agreement remained unsold at the time of its termination.  During the second quarter of 2019, under the Cantor ATM Agreement, the Company issued and sold an aggregate of 1,221,273 ordinary shares and received gross proceeds of $3.5 million and net proceeds of $3.4 million.

 

On June 25, 2019, the Company entered into an Open Market Sale AgreementSM (the “Sale Agreement”) with Jefferies,  pursuant to which, from time to time, the Company may offer and sell ordinary shares, for aggregate gross sale proceeds of up to $50.0 million through Jefferies  by any method permitted that is deemed an “at the market offering” as defined in Rule 415(a)(4) promulgated under the Securities Act of 1933, as amended.  The Company also filed a prospectus supplement with the Securities and Exchange Commission in connection with the Offering under the Company’s shelf Registration Statement on Form S-3 (File No. 333-219567), which became effective on August 10, 2017.

 

From June 25, 2019 through the date of this filing, the Company issued and sold an aggregate of 688,732 ordinary shares pursuant to the Jefferies ATM Agreement and received gross proceeds of $1.6 million and net proceeds of $1.6 million, after deducting commissions to Jefferies and other offering expenses.

 

In March 2019, the Company entered into a license and commercialization agreement, or the Sunovion License Agreement, with Sunovion. As part of the Sunovion License Agreement, Nabriva Therapeutics Ireland DAC , our wholly owned subsidiary, granted Sunovion an exclusive license under certain patent rights, trademark rights and know-how to commercialize certain products containing lefamulin in the forms clinically developed by the Company or any of its affiliates (“Licensed Products”) in Canada in all uses in humans in community-acquired bacterial pneumonia and in any other indication for which the Licensed Products have received regulatory approval in Canada.

 

On June, 19 2019 the Company submitted a Type A Meeting Request and Briefing Document to the FDA to discuss the CRL dated April 30, 2019 for the NDA seeking marketing approval of CONTEPO™ (“fosfomycin”) for injection for the treatment of complicated urinary tract infections (“cUTI”), including acute pyelonephritis. The Type A meeting occurred in July 2019. The Company will receive the FDA’s minutes from the Type A meeting, within thirty days of the meeting date.

 

9


Table of Contents

 

NABRIVA THERAPEUTICS plc

Notes to the Unaudited Consolidated Financial Statements (continued)

(in thousands, except per share data)

 

As the FDA did not request any new clinical data and did not raise any other concerns with regard to the safety or efficacy of CONTEPO in the CRL, the purpose of the meeting was to discuss and gain clarity on the issues related to facility inspections and manufacturing deficiencies at one of Nabriva’s contract manufacturers that were described in the CRL and other matters pertaining to the steps required for the resubmission of the NDA for CONTEPO.

 

On June 24, 2019, the Company announced that the European Medicines Agency (“EMA”) has determined that the Company’s Marketing Authorization Application (“MAA”) for the IV and oral formulations of lefamulin is valid. Validation of the MAA confirms that the submission is sufficiently complete to begin the formal review process and an opinion of the EMA Committee for Medicinal Products for Human Use (“CHMP”) is anticipated in the next 12 to 15 months.

 

The EMA’s review of the application will follow the centralized marketing authorization procedure. If approved by the EMA, lefamulin will receive marketing authorization in all 28 member states of the European Union (“EU”), as well as in Norway, Liechtenstein and Iceland. If approved, Nabriva intends to work with a commercial partner to make lefamulin available to patients in the EU.

 

2.                                      Summary of Significant Accounting Policies

 

Basis of Preparation

 

The unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“US GAAP”) for interim financial information and U.S. Securities and Exchange Commission (“SEC”) regulations for quarterly reporting. The unaudited consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.

 

The accompanying consolidated financial information as of June 30, 2019 and for the three and six months ended June 30, 2018 and 2019 is unaudited. The December 31, 2018 balance sheet was derived from audited consolidated financial statements but does not include all disclosures required by US GAAP. The interim unaudited consolidated financial statements have been prepared on the same basis as the annual audited consolidated financial statements and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary for the fair statement of the Company’s financial position as of June 30, 2019 and for the three and six months ended June 30, 2018 and 2019. The financial data and other information disclosed in these notes related to the three and six months ended June 30, 2018 and 2019 are not necessarily indicative of the results to be expected for the year ending December 31, 2019, any other interim periods or any future year or period. These unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the notes thereto for the year ended December 31, 2018 contained in the Company’s Annual Report on Form 10-K, as filed with the SEC on March 12, 2019.

 

The Company’s significant accounting policies are described in Note 2 of the notes to the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018. Since the date of those financial statements, there have been no changes to the Company’s significant accounting policies, other than described below related to leases.

 

Recent Accounting Pronouncements

 

From time to time, new accounting pronouncements are issued by the FASB or other standard setting bodies that the Company adopts as of the specified effective date.

 

10


Table of Contents

 

NABRIVA THERAPEUTICS plc

Notes to the Unaudited Consolidated Financial Statements (continued)

(in thousands, except per share data)

 

Adopted as of the current period:

 

In February 2016, the FASB issued Accounting Standards Update No. 2016-02, Leases (Topic 842) (“ASU 2016-02”), which sets out the principles for the recognition, measurement, presentation and disclosure of leases for both lessees and lessors.  On January 1, 2019, the Company adopted the new lease standard using the optional transition method under which comparative financial information has not been restated and will continue to apply the provisions of the previous lease standard in its annual disclosures for the comparative periods.  In addition, the new lease standard provides a number of optional practical expedients in transition. The Company elected the package of practical expedients. As such, the Company did not have to reassess whether expired or existing contracts are or contain a lease; and did not have to reassess the lease classifications or reassess the initial direct costs associated with expired or existing leases.

 

The new lease standard also provides practical expedients for an entity’s ongoing accounting. The Company elected the short-term lease recognition exemption under which the Company will not recognize ROU assets or lease liabilities, and this includes not recognizing ROU assets or lease liabilities for existing short-term leases. The Company elected the practical expedient to not separate lease and non-lease components for certain classes of assets (office buildings).

 

The Company determines if an arrangement is a lease at inception. Operating leases are included in operating lease right-of-use (“ROU”) assets, other current liabilities, and operating lease liabilities on the Company’s consolidated balance sheet as of June 30, 2019. Operating lease ROU assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the remaining lease term as of January 1, 2019.  Since none of the Company’s lease agreements provide an implicit rate, the Company estimated an incremental borrowing rate based on the information available at January 1, 2019 in determining the present value of lease payments. Operating lease expense is recognized on a straight-line basis over the lease term, subject to any changes in the lease or expectations regarding the terms. Variable lease costs such as operating costs and property taxes are expensed as incurred.

 

On January 1, 2019, the Company recognized ROU assets and lease liabilities of approximately $2.0 million on its consolidated balance sheet using an estimated incremental borrowing rate of 9.8%.  This ROU asset is recorded in property, plant and equipment, net and the ROU liability is recorded in other non-current liabilities.

 

3.                                      Fair Value Measurement

 

US GAAP establishes a valuation hierarchy for disclosure of the inputs to valuation used to measure fair value. This hierarchy prioritizes the inputs into three broad levels as follows:

 

·             Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities.

 

·             Level 2: Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (as prices) or indirectly (as exchange rates).

 

·             Level 3: Valuation techniques that include inputs for the asset or liability that are not based on observable market data (those are unobservable inputs) and significant to the overall fair value measurement.

 

The following table presents the financial instruments measured at fair value and classified by level according to the fair value measurement hierarchy:

 

(in thousands)

 

Level 1

 

Level 2

 

Level 3

 

Total

 

December 31, 2018

 

 

 

 

 

 

 

 

 

Assets:

 

 

 

 

 

 

 

 

 

Short-term investments:

 

 

 

 

 

 

 

 

 

Available-for-sale securities

 

$

 

$

50

 

$

 

$

50

 

Term deposits

 

175

 

 

 

175

 

Total Assets

 

$

175

 

$

50

 

$

 

$

225

 

 

11


Table of Contents

 

NABRIVA THERAPEUTICS plc

Notes to the Unaudited Consolidated Financial Statements (continued)

(in thousands, except per share data)

 

(in thousands)

 

Level 1

 

Level 2

 

Level 3

 

Total

 

June 30, 2019

 

 

 

 

 

 

 

 

 

Assets:

 

 

 

 

 

 

 

 

 

Short-term investments:

 

 

 

 

 

 

 

 

 

Available-for-sale securities

 

$

 

$

15,078

 

$

 

$

15,078

 

Term deposits

 

175

 

 

 

175

 

Total Assets

 

$

175

 

$

15,078

 

$

 

$

15,253

 

 

As of June 30, 2019 and December 31, 2018, the Company held short-term investments classified as both Level 1 and Level 2, and the Company did not hold any Level 3 financial instruments measured at fair value. There were no transfers between Level 1 and 2 in the three or six months ended June 30, 2019 or the year ended December 31, 2018. There were no changes in valuation techniques during the three and six months ended June 30, 2019.

 

As of June 30, 2019 and December 31, 2018, the Company did not hold any financial instruments as liabilities that were held at fair value. Other receivables and accounts payable are carried at their historical cost which approximates fair value due to their short-term nature.

 

4.                                      Accrued Expenses and Other Liabilities

 

(in thousands)

 

As of
December 31, 2018

 

As of
June 30, 2019

 

Research and development related costs

 

$

5,032

 

$

2,120

 

Payroll and related costs

 

7,427

 

6,250

 

Accounting, tax and audit services

 

398

 

465

 

Other

 

1,645

 

2,367

 

Total other current liabilities

 

$

14,502

 

$

11,202

 

 

5.                                      Debt

 

In December 2018, the Company entered into the Loan Agreement by and among the Company, Nabriva Therapeutics Ireland DAC, and certain other subsidiaries of the Company and Hercules Capital, Inc. (the “Lender”), pursuant to which a term loan of up to an aggregate principal amount of $75.0 million is available to the Company. The Loan Agreement provides for an initial term loan advance of $25.0 million, which was funded in December 2018, and, at the Company’s option and subject to the occurrence of the funding conditions described below and other customary funding conditions, five additional term loan advances comprised of the following; 1) $10.0 million (“Tranche 2 Advance”), 2) $5.0 million (“Tranche 3 Advance”), 3) $10.0 million (“Tranche 4 Advance”), 4) $15.0 million (“Tranche 5 Advance”) and 5) $5.0 million (“Tranche 6 Advance”). The Tranche 2 Advance will be available to the Company through September 30, 2019 upon the approval by the U.S. Food and Drug Administration (“FDA”) of a new drug application (“NDA”) for lefamulin. The Tranche 3 Advance will be available to the Company through September 30, 2019 upon the approval by the FDA of an NDA for CONTEPO. The Tranche 4 Advance will be available to the Company from January 1, 2020 through December 31, 2020 upon the approval by the FDA of NDAs for lefamulin in addition to CONTEPO and upon the achievement of specified product revenue milestones. The Tranche 5 Advance will be available to the Company from July 1, 2020 through June 30, 2021 upon the approval by the FDA of NDAs for lefamulin and CONTEPO and upon the achievement of specified product revenue milestones. The Tranche 6 Advance will be available to the Company from January 1, 2021 through September 30, 2021 upon the approval by the FDA of NDAs for lefamulin and CONTEPO and upon the achievement of specified product revenue milestones. The Company may request a seventh term loan advance of $5.0 million prior to December 31, 2021 subject to the Lender’s sole discretion.

 

12


Table of Contents

 

NABRIVA THERAPEUTICS plc

Notes to the Unaudited Consolidated Financial Statements (continued)

(in thousands, except per share data)

 

The term loan bears interest at an annual rate equal to the greater of 9.80% or 9.80% plus the prime rate of interest minus 5.50%. The Loan Agreement provides for interest-only payments through July 1, 2020, which may be incrementally extended from time to time upon the occurrence of certain conditions through January 1, 2022, and repayment of the outstanding principal balance of the term loan thereafter in monthly installments through June 1, 2023 (the “Maturity Date”). In addition, the Company is required to pay a fee of 6.95% of the aggregate amount of advances under the Loan Agreement at the Maturity Date (the “End of Term Fee”). At the Company’s option, the Company may elect to prepay any portion of the outstanding term loan that is greater than or equal to $5.0 million by paying such portion of the principal balance and all accrued and unpaid interest thereon plus a prepayment charge equal to the following percentage of the principal amount being prepaid: (i) 3.0% if the term loan is prepaid during the first 12 months following the initial closing, (ii) 2.0% if the term loan is prepaid after 12 months following the initial closing but before 24 months following the initial closing and (iii) 1.0% if the term loan is prepaid any time thereafter but prior to the Maturity Date. The Company is also required to satisfy certain financial covenants, including an obligation to maintain specified minimum amounts of cash and cash equivalents in accounts pledged to Hercules.

 

The Company’s obligations under the Loan Agreement are guaranteed by all current and future subsidiaries of the Company, and each of the Company and its subsidiaries has granted the Lender a security interest in all of their respective personal property, intellectual property and other assets owned or later acquired. The Loan Agreement also contains certain events of default, representations, warranties and covenants of the Company and its subsidiaries. For example, the Loan Agreement contains representations and covenants that, subject to exceptions, restrict the Company’s and its subsidiaries’ ability to do the following, among other things: declare dividends or redeem or repurchase equity interests; incur additional indebtedness and liens; make loans and investments; engage in mergers, acquisitions and asset sales; certain transactions with affiliates; undergo a change in control; and add or change business locations or settle in cash potential milestone payment obligations that may become payable by the Company in the future to former security holders of Zavante. Under the terms of the Loan Agreement, the Company and its subsidiaries are also required to satisfy certain financial covenants, including an obligation to maintain specified minimum amounts of cash and cash equivalents in accounts pledged to the Lender.

 

The Loan Agreement also grants Lender or its nominee an option to purchase up to an aggregate of $2.0 million of the Company’s equity securities, or instruments exercisable for or convertible into equity securities, sold to investors in any private financing upon the same terms and conditions afforded to such other investors for as long as there are amounts outstanding under the Loan Agreement.

 

The Company incurred $1.3 million of costs in connection with the Loan Agreement which along with the initial fee of $0.7 million paid to the Lender, were recorded as debt issuance cost and will be amortized as interest expense using the effective interest method over the term of the loan. The End of Term Fee will also be accrued as additional interest expense using the effective interest method over the term of the loan.

 

Long-term debt as December 31, 2018 and June 30, 2019 consisted of the following:

 

 

 

As of
December 31

 

As of
June 30

 

(in thousands)

 

2018

 

2019

 

Term loan payable

 

$

25,000

 

$

25,000

 

End of term fee

 

 

207

 

Unamortized debt issuance costs

 

(1,990

)

(1,695

)

Carrying value of term loan

 

23,010

 

23,512

 

Other long-term debt

 

708

 

794

 

Total long-term debt

 

$

23,718

 

$

24,306

 

 

13


Table of Contents

 

NABRIVA THERAPEUTICS plc

Notes to the Unaudited Consolidated Financial Statements (continued)

(in thousands, except per share data)

 

Maturities of long-term debt as of June 30, 2019 were as follows:

 

(in thousands)

 

 

 

2019

 

$

 

2020

 

3,656

 

2021

 

8,678

 

2022

 

8,704

 

2023

 

4,756

 

 

 

6.                                      Revenue

 

 

 

Three Months Ended

 

Six Months Ended

 

 

 

June 30,

 

June 30,

 

(in thousands)

 

2018

 

2019

 

2018

 

2019

 

Collaboration revenues

 

$

 

$

 

$

6,500

 

$

1,000

 

Research premium

 

709

 

351

 

1,479

 

744

 

Government grants

 

138

 

174

 

419

 

484

 

Total

 

$

847

 

$

525

 

$

8,398

 

$

2,228

 

 

The collaboration revenue for the six months ended June 30, 2018 reflects the amounts recorded from the Sinovant License Agreement (see Note 11) and includes the $5.0 million non-refundable upfront payment received as consideration for entering into the license agreement with Sinovant as well as $1.5 million of variable consideration related a future milestone payment that the Company received in the first quarter of 2019. The $1.0 million of collaboration revenue for the six months ended June 30, 2019 reflects the upfront payment under the Sunovion License Agreement received in April 2019 (see Note 12). The remainder of the revenue in the three and six months ended June 30, 2018 and 2019 reflects governmental research premiums, non-refundable government grants and the benefit of government loans at below-market interest rates.

 

7 .                                   Share-Based Payments

 

Stock Option Plan 2015

 

On April 2, 2015, the shareholders, management board and supervisory board of the Company’s predecessor, Nabriva Therapeutics AG (“Nabriva Austria”) adopted the Stock Option Plan 2015 (the “SOP 2015”) and the shareholders approved an amended and restated version of the SOP 2015 on June 30, 2015. An amendment to the amended and restated SOP 2015 was approved by the shareholders on July 22, 2015. The SOP 2015 became effective on July 3, 2015 upon the registration with the commercial register in Austria of the conditional capital increase approved by the shareholders on June 30, 2015. The SOP 2015 initially provided for the grant of options for up to 95,000 Nabriva Austria common shares to the Company’s employees, including members of the management board, and to members of the supervisory board. Following the closing of the initial public offering of the Company, the overall number of options increased to 177,499 Nabriva Austria common shares. Following approval by the Company’s shareholders at its 2016 annual general meeting, the number of shares available for issuance under the SOP 2015 was increased to 346,235 Nabriva Austria common shares. In connection with the series of transactions pursuant to which the Company became the successor to Nabriva Austria and redomiciled to Ireland, which the Company refers to as the Redomiciliation Transaction, the SOP 2015 was amended to take account of certain requirements under Irish law and assumed by the Company, with each option to acquire one Nabriva Austria common share becoming an option to acquire ten of the Company’s ordinary shares on the same terms and conditions.

 

Each vested option grants the beneficiary the right to acquire one share in the Company. The vesting period for the options is four years following the grant date. On the last day of the last calendar month of the first year of the vesting period, 25% of the options attributable to each beneficiary are automatically vested. During the second, third and fourth years of the vesting period, the remaining 75% of the options vest on a monthly pro rata basis (i.e. 2.083% per month). Options granted under the SOP 2015 have a term of no more than ten years from the beneficiary’s date of participation.

 

14


Table of Contents

 

NABRIVA THERAPEUTICS plc

Notes to the Unaudited Consolidated Financial Statements (continued)

(in thousands, except per share data)

 

The following table summarizes information regarding our stock option awards under the SOP 2015 for the six months ended June 30, 2019:

 

Stock Option Plan 2015

 

Options

 

Weighted
average
exercise
price in $
per share

 

Aggregate
intrinsic value

 

Outstanding as of January 1, 2019

 

2,842,913

 

8.34

 

 

Granted

 

 

 

 

Exercised

 

 

 

 

Forfeited

 

(52,349

)

9.63

 

 

Outstanding as of June 30, 2019

 

2,790,564

 

8.32

 

$

 

Vested and exercisable as of June 30, 2019

 

2,117,189

 

8.13

 

$

 

 

Stock-based compensation expense under the SOP 2015 was $0.7 million and $1.6 million for the three and six months ended June 30, 2019, respectively, and $0.4 million and $1.3 million for the three and six months ended June 30, 2018, respectively.

 

The weighted average remaining contractual life of the options as of June 30, 2019 is 6.9 years.

 

As of June 30, 2019, there was $3.5 million of total unrecognized compensation expense, related to unvested options granted under the SOP 2015, which will be recognized over the weighted-average remaining vesting period of 1.7 years.

 

2017 Share Incentive Plan

 

On July 26, 2017, the Company’s board of directors adopted the 2017 Share Incentive Plan (the “2017 Plan”) and the shareholders approved the 2017 Plan at the Company’s Extraordinary General Meeting of Shareholders on September 15, 2017. Following shareholder approval of the 2017 Plan, the Company ceased making awards under the SOP 2015, and future awards will be made under the 2017 Plan.  However, all outstanding awards under SOP 2015 will remain in effect and continue to be governed by the terms of the SOP 2015. The 2017 Plan permits the award of share options (both incentive and nonstatutory options), share appreciation rights (“SARs”), restricted shares, restricted share units (“RSUs”), and other share-based awards to the Company’s employees, officers, directors, consultants and advisers. The 2017 Plan is administered by the Company’s board of directors.

 

Under the 2017 Plan, the number of ordinary shares that will be reserved for issuance will be the sum of (1) 3,000,000 ordinary shares; plus (2) a number of ordinary shares (up to 3,438,990 ordinary shares) which is equal to the sum of the number of the Company’s ordinary shares then available for issuance under the SOP 2015 and the number of ordinary shares subject to outstanding awards under the SOP 2015 that expire, terminate or are otherwise surrendered, cancelled, forfeited or repurchased by the Company at their original issuance price pursuant to a contractual repurchase right; plus (3) an annual increase, to be added on the first day of each fiscal year beginning in the fiscal year ending December 31, 2018 and continuing until, and including, the fiscal year ending December 31, 2027, equal to the least of (i) 2,000,000 ordinary shares, (ii) 4% of the number of outstanding ordinary shares on such date and (iii) an amount determined by the board of directors.

 

At June 30, 2019, 7,116,727 ordinary shares were available for issuance under the 2017 Plan.

 

Options and SARs granted will be exercisable at such times and subject to such terms and conditions as the board may specify in the applicable option agreement; provided, however, that no option or SAR will be granted with a term in excess of ten years. The board will also determine the terms and conditions of restricted shares and RSUs, including the conditions for vesting and repurchase (or forfeiture) and the issue price, if any.

 

15


Table of Contents

 

NABRIVA THERAPEUTICS plc

Notes to the Unaudited Consolidated Financial Statements (continued)

(in thousands, except per share data)

 

The following table summarizes information regarding our stock option awards under the 2017 Plan for the six months ended June 30, 2019:

 

2017 Plan

 

Options

 

Weighted
average
exercise
price in $
per share

 

Aggregate
intrinsic value

 

Outstanding as of January 1, 2019

 

2,398,425

 

5.41

 

 

Granted

 

2,218,300

 

1.91

 

 

Exercised

 

 

 

 

Forfeited

 

(98,650

)

4.14

 

 

Outstanding as of June 30, 2019

 

4,518,075

 

3.72

 

$

1,245

 

Vested and exercisable as of June 30, 2019

 

817,682

 

6.03

 

 

 

Stock-based compensation expense under the 2017 Plan was $0.8 million and $1.3 million for the three and six months ended June 30, 2019, respectively, and $0.3 million and $0.7 million for the three and six months ended June 30, 2018. The weighted average fair value of the options granted during the six months ended June 30, 2019 was $1.12 per share. The options granted in the six months ended June 30, 2019 were valued based on a Black Scholes option pricing model using the following assumptions. The significant inputs into the model were as follows:

 

Input parameters

 

 

 

Range of expected volatility

 

61.4% – 61.8%

 

Expected term of options (in years)

 

6.1

 

Range of risk-free interest rate

 

2.34% - 2.58%

 

Dividend yield

 

 

 

The expected price volatility is based on historical trading volatility for the publicly traded peer companies under consideration of the remaining life of the options. The risk-free interest rate is based on the average of five and seven-year market yield on U.S. treasury securities in effect at the time of grant.

 

The weighted average remaining contractual life of the options as of June 30, 2019 is 9.1 years.

 

As of June 30, 2019, there was $6.7 million of total unrecognized compensation expense, related to unvested options granted under the 2017 Plan, which will be recognized over the weighted-average remaining vesting period of 3.8 years.

 

Restricted Stock Units

 

During the six months ended June 30, 2019, the Company granted 479,000 RSUs with a grant date fair value of $1.90 per share, which was the closing price of the Company’s shares on the grant date. These RSUs vest over a period of four years with 25% vesting upon the first anniversary of the grant date and on a monthly pro rata basis thereafter over the remaining three years. As of June 30, 2019, there were 479,000 of such RSUs outstanding. For the three and six months ended June 30, 2019, $57 thousand and $95 thousand, respectively, of stock-based compensation expense was recognized for these RSUs.

 

The Company has granted a total of 371,550 RSUs, with a grant date fair value of $6.13 per share, with vesting subject to FDA approval of the new drug application (“NDA”) for lefamulin. Fifty percent (50%) of each RSU award will vest upon FDA approval of an NDA for lefamulin, and the remaining fifty percent (50%) will vest on the one-year anniversary of such approval. If the FDA does not approve an NDA for lefamulin within two years of the grant date, the RSU award will terminate in full. No compensation expense was recognized for these RSUs as vesting is not probable for the three and six months ended June 30, 2019. As of June 30, 2019, there were 346,450 of such RSUs outstanding.

 

16


Table of Contents

 

NABRIVA THERAPEUTICS plc

Notes to the Unaudited Consolidated Financial Statements (continued)

(in thousands, except per share data)

 

The Company has granted a total of 35,600 RSUs, with a grant date fair value of $2.56 per share, with vesting subject to FDA approval of the NDAs for lefamulin and CONTEPO. Fifty percent (50%) of each RSU award will vest upon FDA approval of an NDA for lefamulin, and the remaining fifty percent (50%) will vest on FDA approval of CONTEPO. If the FDA does not approve an NDA for either lefamulin or CONTEPO by January 31, 2020, the RSU award will terminate in full. No compensation expense was recognized for these RSUs as vesting was not probable for the three and six months ended June 30, 2019. As of June 30, 2019, all of such RSUs were outstanding.

 

The Company has also granted a total of 834,300 RSUs to certain employees with a grant date fair value of $2.16 per share. These RSUs vest in three six-month increments beginning in May 2019 and ending in May 2020. As of June 30, 2019, a total of 256,709 RSUs have vested and were issued and there were 513,591 of such RSUs outstanding. For the three and six months ended June 30, 2019, $0.3 million and $0.5 million, respectively, of compensation expense was recognized for these RSUs.

 

2019 Inducement Share Incentive Plan

 

On March 12, 2019, the Company’s board of directors adopted the 2019 Inducement Share Incentive Plan (the “2019 Inducement Plan”) and, subject to the adjustment provisions of the 2019 Inducement Plan, reserved 2,000,000 ordinary shares for issuance pursuant to equity awards granted under the 2019 Inducement Plan. In accordance with Nasdaq Listing Rule 5635(c)(4), awards under the 2019 Inducement Plan may only be made to individuals who were not previously employees or non-employee directors of the Company (or following such individuals’ bona fide period of non-employment with the Company), as an inducement material to the individuals’ entry into employment with the Company.

 

At June 30, 2019, 2,000,000 ordinary shares were available for issuance under the 2019 Inducement Plan.

 

Options and SARs granted will be exercisable at such times and subject to such terms and conditions as the board may specify in the applicable option agreement; provided, however, that no option or SAR will be granted with a term in excess of ten years. The board will also determine the terms and conditions of restricted shares and RSUs, including the conditions for vesting and repurchase (or forfeiture) and the issue price, if any.

 

The following table summarizes information regarding our stock option awards under the 2019 Inducement Plan for the six months ended June 30, 2019:

 

2019 Inducement Plan

 

Options

 

Weighted
average
exercise
price in $
per share

 

Aggregate
intrinsic value

 

Outstanding as of January 1, 2019

 

 

 

 

 

Granted

 

205,150

 

2.75

 

 

 

Exercised

 

 

 

 

 

Forfeited

 

 

 

 

 

Outstanding as of June 30, 2019

 

205,150

 

2.75

 

$

5

 

Vested and exercisable as of June 30, 2019

 

 

 

 

 

Stock-based compensation expense under the 2019 Inducement Plan was $14 thousand for both the three and six months ended June 30, 2019. The weighted average fair value of the options granted during the six months ended June 30, 2019 was $1.87 per share. The options granted in the six months ended June 30, 2019 were valued based on a Black Scholes option pricing model using the following assumptions. The significant inputs into the model were as follows:

 

Input parameters

 

 

 

Expected volatility

 

61.6% – 62.9%

 

Expected term of options (in years)

 

6.1   

 

Risk-free interest rate

 

1.98% – 2.34%

 

Dividend yield

 

—   

 

 

17


Table of Contents

 

NABRIVA THERAPEUTICS plc

Notes to the Unaudited Consolidated Financial Statements (continued)

(in thousands, except per share data)

 

The weighted average remaining contractual life of the options as of June 30, 2019 is 9.8 years.

 

As of June 30, 2019, there was $0.3 million of total unrecognized compensation expense, related to unvested options granted under the 2019 Inducement Plan, which will be recognized over the weighted-average remaining vesting period of 3.8 years.

 

Inducement Awards Outside of the 2019 Inducement Plan

 

In July 2018, the Company granted a non-statutory option to purchase 850,000 of its ordinary shares and 150,000 performance-based RSUs to the Company’s newly appointed Chief Executive Officer (the “CEO”). These equity awards, granted outside of the 2017 Plan and the 2019 Inducement Plan, were approved by the Company’s compensation committee and board of directors and were made as an inducement material to the CEO entering into employment with the Company in accordance with Nasdaq Listing Rule 5635(c)(4). The exercise price per share for the share option is $3.53 per share, and the option award has a ten-year term and will vest over a four-year period, with 25% of the shares underlying the award vesting on the first anniversary of the grant date and the remaining 75% of the shares underlying the option award to vest monthly over the subsequent 36-month period. The performance-based RSUs are subject to vesting as follows: 50% will vest upon certification by the board of directors of the receipt of approval by the FDA of an NDA for each of lefamulin and CONTEPO for any indication, and 50% will vest on the first anniversary of such certification by the board of directors, provided, in each case, the CEO is performing services to the Company on the applicable vesting dates. If the FDA does not approve an NDA for both lefamulin and CONTEPO by January 31, 2020, the performance-based RSUs will terminate in full.

 

Stock-based compensation expense for the inducement awards granted outside of the 2019 Inducement Plan was $0.1 million and $0.2 million for the three and six months ended June 30, 2019, respectively. The performance-based RSUs had a grant date fair value of $3.53 per share and the options had a grant date fair value of $2.05 per share based on a Black Scholes option pricing model using the following assumptions.

 

Input parameters

 

 

 

Expected volatility

 

59.8

%

Expected term of options (in years)

 

6.1

 

Range of risk-free interest rate

 

2.9

%

Dividend yield

 

 

 

The weighted average remaining contractual life of the options as of June 30, 2019 is 9.1 years.

 

Our stock-based compensation expense has been allocated to research and development and general and administrative expenses in the consolidated statements of operations as follows:

 

 

 

Six Months Ended
June 30,

 

(in thousands)

 

2018

 

2019

 

Research and development

 

$

918

 

$

731

 

General and administrative

 

1,093

 

2,997

 

Total

 

$

2,011

 

$

3,728

 

 

Employee Share Purchase Plan

 

The Company’s board of directors adopted, and in August 2018 Company’s shareholders approved, the 2018 employee share purchase plan (the “2018 ESPP”). The maximum aggregate number of shares of ordinary shares that may be purchased under the 2018 ESPP is 500,000 shares, (the “ESPP Share Pool”), subject to adjustment as provided for in the 2018 ESPP. The ESPP Share Pool represented 0.75% of the total number of shares of ordinary shares outstanding as of December 31, 2018. The 2018 ESPP allows eligible employees to purchase shares at a 15% discount to the then current market price of the Company’s ordinary shares during certain offering periods, which will be six -month periods commencing November 1 and ending April 30 and commencing May 1 and ending October 31 of each year. Under the Company’s first 2018 ESPP offering which commenced on November 1, 2018, a total of 92,331 ordinary shares were purchased by eligible employees. Compensation expense recognized for the first ESPP offering was $0.1 million for the three and six months ended June 30, 2019,

 

18


Table of Contents

 

NABRIVA THERAPEUTICS plc

Notes to the Unaudited Consolidated Financial Statements (continued)

(in thousands, except per share data)

 

8.                                      Income tax benefit (expense)

 

In accordance with the FASB Accounting Standard Codification (ASC) Topic No. 270 “Interim Reporting” and ASC Topic No. 740 “Income Taxes” (Topic No. 740) at the end of each interim period, the Company is required to determine the best estimate of its annual effective tax rate and then apply that rate in providing for income taxes on a current year-to-date (interim period) basis. For the three months ended June 30, 2018 and 2019, the Company recorded a tax benefit of $48 thousand and $45 thousand, respectively. For the six months ended June 30, 2018 and 2019, the Company recorded a tax expense of $0.5 million and $0.1 million, respectively.

 

Deferred tax assets and deferred tax liabilities are recognized based on temporary differences between the financial reporting and tax bases of assets and liabilities using statutory rates. Management of the Company has evaluated the positive and negative evidence bearing upon the realizability of its deferred tax assets, including the Company’s history of losses and concluded that it is more likely than not that the Company will not recognize the benefits of its deferred tax assets.  On the basis of this evaluation, as of June 30, 2019 and December 31, 2018, the Company has recorded a valuation allowance of $106.1 million and $100.8 million, respectively. The amount of the deferred tax assets considered realizable, however, could be adjusted if estimates of future taxable income during the carryforward period are reduced or increased or if objective negative evidence in the form of cumulative losses is no longer present and additional weight is given to subjective evidence such as the Company’s projections for growth.

 

9.                                      Earnings (Loss) per Share

 

Basic and diluted loss per share

 

For the three and six months ended June 30, 2018 and 2019, basic and diluted net loss per share was determined by dividing net loss attributable to shareholders by the weighted average number of shares outstanding during the period.  Diluted net loss per share is the same as basic net loss per share during the periods presented as the effects of the Company’s potential ordinary share equivalents are antidilutive and thus not included in the calculation.

 

 

 

Three Months Ended

 

Six Months Ended

 

 

 

June 30,

 

June 30,

 

(in thousands, except share and per share data)

 

2018

 

2019

 

2018

 

2019

 

Net loss for the period

 

$

(17,788

)

$

(21,707

)

$

(31,130

)

$

(41,924

)

Weighted average number of shares outstanding

 

40,515,920

 

72,526,441

 

38,723,718

 

70,624,583

 

Basic and diluted loss per share

 

$

(0.44

)

$

(0.30

)

$

(0.80

)

$

(0.59

)

 

The following ordinary share equivalents were excluded from the calculations of diluted earnings per share as their effect would be anti-dilutive:

 

 

 

Three Months Ended

 

Six Months Ended

 

 

 

June 30,

 

June 30,

 

 

 

2018

 

 2019

 

2018

 

2019

 

Stock option awards

 

4,896,520

 

8,363,789

 

4,896,500

 

8,363,789

 

Restricted stock units

 

328,300

 

1,524,642

 

328,300

 

1,524,642

 

 

10.                               Acquisition of Zavante

 

On July 24, 2018, the Company acquired Zavante. The acquisition was completed on July 24, 2018 (the “Closing”). In connection with the Closing, the Company issued 7,336,906 Company ordinary shares to former Zavante stockholders, which together with the 815,186 ordinary shares that were issued upon release of the Holdback Shares in July 2019 (as defined below) constituted approximately 19.9% of the Company ordinary shares outstanding as of immediately prior to the Closing (the “Upfront Shares”).

 

Pursuant to the Merger Agreement, former Zavante stockholders and other equity holders, in the aggregate and subject to the terms and conditions of the Merger Agreement, will also be entitled to receive from the Company up to $97.5 million in contingent consideration, of which $25.0 million would become payable upon the first approval of an NDA from the FDA for CONTEPO for any indication (the “Approval Milestone Payment”) and an aggregate of up to $72.5 million would become payable upon the achievement of specified sales milestones (the “Net Sales Milestone Payments”), with the first commercial milestone becoming payable when CONTEPO exceeds $125.0 million in net sales in a calendar year.

 

19


Table of Contents

 

NABRIVA THERAPEUTICS plc

Notes to the Unaudited Consolidated Financial Statements (continued)

(in thousands, except per share data)

 

At the Company’s Extraordinary General Meeting of Shareholders held in October 2018, the shareholders approved the issuance of the Company’s ordinary shares in settlement of potential milestone payment obligations that may become payable in the future to former Zavante stockholders, including the Approval Milestone Payment which will be settled in Company ordinary shares. The Company also now has the right to settle the Net Sales Milestone Payments in Company ordinary shares, except as otherwise provided in the Merger Agreement.

 

Pursuant to the terms of the Merger Agreement, 10% of the Upfront Shares (the “Holdback Shares”) served as a source for the satisfaction of indemnification and other obligations of the former Zavante stockholders. No indemnification or other obligations arose and the Holdback Shares were issued to the former Zavante stockholders following the first anniversary of the Closing on July 25, 2019.

 

Former Zavante stockholders who do not comply with specified procedural requirements set forth in the Merger Agreement, and former holders of Zavante options and warrants, will receive cash in lieu of any Company ordinary shares that otherwise would be issuable to them pursuant to the Merger Agreement. As of June 30, 2019, the Company did not distribute any cash in lieu of ordinary shares to former Zavante stockholders. Also, the Company anticipates that cash distributions, if any, will not be material.

 

The Company accounted for the acquisition of Zavante as an asset acquisition as the arrangement did not meet the definition of a business pursuant to the guidance prescribed in ASC Topic 805, Business Combinations because the transaction resulted in the acquisition of the exclusive rights to IV fosfomycin in the U.S. which is a single identifiable asset and represented substantially all the fair value of the assets acquired.

 

The Company expensed the acquired intellectual property as of the acquisition date as in-process research and development with no alternative future uses. The Company recorded an in-process research and development expense of $32.0 million in 2018 which represents $26.9 million for the fair value of the Upfront Shares, $4.9 million of transaction costs and $0.2 million of net liabilities assumed.

 

In addition, the Company assumed certain liabilities and obligations, including contractual liabilities and obligations, that were assumed by the Company upon closing of the acquisition. See “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations Acquisition of Zavante” for further information regarding the agreements that were assumed by the Company.

 

11.                               Sinovant License Agreement

 

In March 2018, the Company entered into a license agreement (the “Sinovant License Agreement”), with Sinovant Sciences, Ltd. (“Sinovant”), an affiliate of Roivant Sciences, Ltd., to develop and commercialize lefamulin in the greater China region. As part of the Sinovant License Agreement, Nabriva Therapeutics Ireland DAC and Nabriva Therapeutics GmbH, the Company’s wholly owned subsidiaries, granted Sinovant an exclusive license to develop and commercialize, and a non-exclusive license to manufacture, certain products containing lefamulin (the “Licensed Products”), in the People’s Republic of China, Hong Kong, Macau, and Taiwan (together the “Territory”).

 

Under the Sinovant License Agreement, Sinovant and the Company’s subsidiaries have established a joint development committee (the “JDC”), to review and oversee development and commercialization plans in the Territory. The Company received a non-refundable $5.0 million upfront payment pursuant to the terms of the Sinovant License Agreement and will be eligible for up to an additional $91.5 million in milestone payments upon the achievement of certain regulatory and commercial milestone events related to lefamulin for CABP, plus an additional $4.0 million in milestone payments if any Licensed Product receives a second or any subsequent regulatory approval in the People’s Republic of China. The first milestone was a $1.5 million payment for the submission of a clinical trial application (“CTA”), by Sinovant to the Chinese Food and Drug Administration. This payment was received in the first quarter of 2019. The remaining milestone payments are tied to additional regulatory approvals and annual sales targets. In addition, the Company will be eligible to receive low double-digit royalties on sales, if any, of Licensed Products in the Territory.

 

Sinovant will be solely responsible for all costs related to developing, obtaining regulatory approval of and commercializing Licensed Products in the Territory and is obligated to use commercially reasonable efforts to develop, obtain regulatory approval for, and commercialize Licensed Product in the Territory. The Company is obligated to use commercially reasonable efforts to supply, pursuant to supply agreements to be negotiated by the parties, to Sinovant sufficient supply of lefamulin for Sinovant to manufacture finished drug products for development and commercialization of the Licensed Products in the Territory.

 

20


Table of Contents

 

NABRIVA THERAPEUTICS plc

Notes to the Unaudited Consolidated Financial Statements (continued)

(in thousands, except per share data)

 

Unless earlier terminated, the Sinovant License Agreement will expire upon the expiration of the last royalty term for the last Licensed Product in the Territory, which the Company expects will occur in 2033. Following the expiration of the last royalty term, the license granted to Sinovant will become non-exclusive, fully-paid, royalty-free and irrevocable. The Sinovant License Agreement may be terminated in its entirety by Sinovant upon 180 days’ prior written notice at any time. Either party may, subject to specified cure periods, terminate the Sinovant License Agreement in the event of the other party’s uncured material breach. Either party may also terminate the Sinovant License Agreement under specified circumstances relating to the other party’s insolvency. The Company has the right to terminate the Sinovant License Agreement immediately if Sinovant does not reach certain development milestones by certain specified dates (subject to specified cure periods). The Sinovant License Agreement contemplates that the Company will enter into ancillary agreements with Sinovant, including clinical and commercial supply agreements and a pharmacovigilance agreement.

 

The Company has identified two performance obligations at inception: (1) the delivery of the licenses to Sinovant; and, (2) the participation in the JDC. The $5.0 million non-refundable upfront payment was allocated to the delivery of the licenses as the JDC deliverable was deemed to be de minimis. In addition, since the first $1.5 million milestone payment related to the submission of the CTA was within the control of the parties, the Company recorded such milestone as variable consideration allocated to the licenses at the inception of the arrangement as the Company believed it was probable to be met. The $1.5 million payment was received in February 2019 upon submission of the CTA. The future regulatory and commercial milestone payments will be recorded during the period the milestones become probable of achievement.

 

12.                               Sunovion License Agreement

 

In March 2019, the Company entered into a license and commercialization agreement (the “Sunovion License Agreement”), with Sunovion. As part of the Sunovion License Agreement, Nabriva Therapeutics Ireland DAC, the Company’s wholly owned subsidiary, granted Sunovion an exclusive license under certain patent rights, trademark rights and know-how to commercialize certain products containing lefamulin in the forms clinically developed by the Company or any of its affiliates (“Licensed Products”) in Canada in all uses in humans in community-acquired bacterial pneumonia and in any other indication for which the Licensed Products have received regulatory approval in Canada. Under the Sunovion License Agreement, Sunovion and DAC will establish a joint development committee, or the JDC, to review and oversee regulatory approval and commercialization plans in the Territory. Sunovion will be solely responsible for all costs related to obtaining regulatory approval of and commercializing Licensed Products in the Territory and is obligated to use commercially reasonable efforts to develop, obtain regulatory approval for, and commercialize Licensed Product in the Territory.

 

The Company has identified two performance obligations at inception: (1) the delivery of the exclusive license to Sunovion, which we have determined is a distinct license of functional intellectual property that Sunovion has obtained control of; and, (2) the participation in the JDC. The $1.0 million non-refundable upfront payment was allocated entirely to the delivery of the license as the JDC deliverable was deemed to be de minimis.

 

Any future regulatory and commercial milestone payments under the Sunovion License Agreement will be recorded during the period the milestones become probable of achievement.

 

13.                               Commitments and Contingencies

 

Leases

 

The Company leases office spaces in King of Prussia, Pennsylvania, San Diego, California, Dublin, Ireland and laboratory and office space in Vienna, Austria under agreements previously classified as operating leases.

 

The lease agreement in King of Prussia, Pennsylvania expires on December 15, 2023 and does not include any renewal options. The agreement provides for an initial monthly base amount plus annual escalations through the term of the lease.

 

The lease agreement in San Diego, California expired on June 30, 2019 and was not renewed by the Company. In May 2019, the Company entered into a month-to-month sublease agreement for office space for two employees in San Diego, California.

 

For the lease agreement in Vienna Austria, the Company can terminate the lease without the landlord’s consent and without paying a termination penalty by giving six months’ notice to the landlord. The agreement provides for a monthly base fixed amount. The Company is in the process of determining the appropriate space needed in the building based on its needs. As a result, the Company may negotiate a new lease or evaluate additional or alternate spaces. As such, the Company has classified the agreement as a short-term lease.

 

21


Table of Contents

 

NABRIVA THERAPEUTICS plc

Notes to the Unaudited Consolidated Financial Statements (continued)

(in thousands, except per share data)

 

In March 2019, the Company entered into lease agreement for office space in Dublin, Ireland which expires on April 30, 2021. The agreement can be automatically renewed by both parties equal to the current lease term but for no less than three months. The agreement provides for a monthly based fixed amount of 7,000 euros beginning on the commencement date which was in May 2019. Upon the commencement date of the lease, the Company recognized a ROU asset and lease liability of approximately $0.2 million.

 

In addition to the monthly base amounts under the lease agreements, the Company is required to pay its proportionate share of real estate taxes and operating expenses during the lease terms for the King of Prussia lease.

 

For the three and six months ended June 30, 2019, the Company’s operating lease expense was $0.4 million and $0.7 million, respectively, which included short term lease expense of $0.2 million and $0.5 million, respectively.

 

As of June 30, 2019, the lease term of the King of Prussia operating leases was 4.5 years and the discount rate was 9.8%.

 

As of June 30, 2019, other information related to the operating leases were as follows:

 

Operating Cash Flow Supplemental Information:

 

(in thousands)

 

June 30, 2019

 

Cash paid for amounts included in the measurement of the operating lease liabilities

 

$

264

 

Right-of-use assets obtained in exchange for operating lease obligations

 

$

2,021

 

 

The following table sets forth by year the required future payments of operating lease liabilities:

 

(in thousands)

 

June 30, 2019

 

Remainder of 2019

 

$

251

 

2020

 

507

 

2021

 

515

 

2022

 

522

 

2023

 

533

 

Total lease payments

 

2,328

 

Less imputed interest

 

(456

)

Present value of operating lease liabilities

 

1,872

 

 

The following table sets forth by year the minimum expected lease payments under non-cancelable operating leases as of December 31, 2018:

 

(in thousands)

 

December 31, 2018

 

2019

 

$

515

 

2020

 

507

 

2021

 

515

 

Total lease payments

 

$

1,537

 

 

22


Table of Contents

 

NABRIVA THERAPEUTICS plc

Notes to the Unaudited Consolidated Financial Statements (continued)

(in thousands, except per share data)

 

Legal Proceedings

 

On May 8, 2019, a putative class action lawsuit was filed against the Company and its Chief Executive Officer in the United States District Court for the Southern District of New York, captioned Larry Enriquez v. Nabriva Therapeutics PLC, and Ted Schroeder, No. 19-cv-04183. The complaint purports to be brought on behalf of shareholders who purchased the Company’s securities between November 1, 2018 and April 30, 2019. The complaint generally alleges that the Company and its Chief Executive Officer violated Sections 10(b) and/or 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder by making allegedly false and/or misleading statements and omitting to disclose material facts concerning the Company’s submission of an NDA to the FDA for marketing approval of CONTEPO for the treatment of cUTI in the United States and the likelihood of such approval. The complaint seeks unspecified damages, attorneys’ fees, and other costs.

 

On May 22, 2019, a second putative class action lawsuit was filed against us and our Chief Executive Officer in the United States District Court for the Southern District of New York, captioned Anthony Manna v. Nabriva Therapeutics PLC, and Ted Schroeder, No. 19-cv-04713. The complaint purports to be brought on behalf of shareholders who purchased our securities between November 1, 2018 and April 30, 2019.  The allegations made in the Manna complaint are similar to those made in the Enriquez complaint, and the Manna complaint seeks similar relief. On May 24, 2019, these two lawsuits were consolidated by the court. The court appointed a lead plaintiff and approved plaintiff’s selection of lead counsel on July 22, 2019.

 

The Company denies any and all allegations of wrongdoing and intends to vigorously defend against this lawsuit. The Company is unable, however, to predict the outcome of this matter at this time. Moreover, any conclusion of this matter in a manner adverse to the Company and for which it incurs substantial costs or damages not covered by the Company’s directors’ and officers’ liability insurance would have a material adverse effect on its financial condition and business. In addition, the litigation could adversely impact the Company’s reputation and divert management’s attention and resources from other priorities, including the execution of its business plan and strategies that are important to the Company’s ability to grow its business, any of which could have a material adverse effect on the Company’s business.

 

Other Commitments and Contingencies

 

The Company has other contractual commitments related primarily to contracts entered into with contract research organizations and contract manufacturing organizations in connection with the conduct of clinical trials and other research and development activities. During the six months ended June 30, 2019, there were no material changes outside the ordinary course of the Company’s business to its contractual obligations as disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018, relating to contract research organizations and contract manufacturing organizations.

 

The Company has no contingent liabilities in respect of legal claims arising in the ordinary course of business.

 

14.                               Subsequent Events

 

The Company evaluated all events or transactions that occurred subsequent to June 30, 2019 through the date the unaudited consolidated financial statements were issued and have not identified any such events material to an understanding of the unaudited consolidated financial statements.

 

23


Table of Contents

 

ITEM 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

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 appearing elsewhere in this Quarterly Report on Form 10-Q and our historical consolidated financial statements and the related notes thereto appearing in our Annual Report on Form 10-K for the year ended December 31, 2018, filed with the Securities and Exchange Commission on March 12, 2019. Some of the information contained in this discussion and analysis or set forth elsewhere in this Quarterly Report, including information with respect to our plans and strategy for our business, 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 Quarterly Report, 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.

 

Overview

 

We are a biopharmaceutical company engaged in the development of novel anti-infective agents to treat serious infections. We have two product candidates that have been submitted to the U.S. Food and Drug Administration, or the FDA, for approval: lefamulin, potentially the first pleuromutilin antibiotic available for oral and intravenous, or IV, administration in humans, for the treatment of community-acquired bacterial pneumonia, or CABP and CONTEPO, a potentially first-in-class epoxide antibiotic for intravenous use in the United States for complicated urinary tract infections, or cUTI. We may potentially develop lefamulin and CONTEPO for additional indications. Both lefamulin formulations and CONTEPO were granted Qualified Infectious Disease Product, or QIDP, and Fast Track designation by the FDA, enabling Priority Review of the New Drug Applications, or the NDAs by the FDA.  We intend to market both products, if approved, in the United States with focused commercial and medical affairs groups.

 

Lefamulin is a semi-synthetic pleuromutilin antibiotic discovered and developed by our team with the potential to be first-in-class for IV and oral in humans. It inhibits the synthesis of bacterial protein, which is required for bacteria to grow by binding with high affinity, high specificity and at molecular targets that are different than other antibiotic classes. Based on results from two global, Phase 3 clinical trials, we believe that lefamulin is well-positioned for use as a first-line monotherapy for the treatment of CABP due to its novel mechanism of action, targeted spectrum of activity, resistance profile, achievement of substantial drug concentration in lung tissue and fluid, availability of oral and IV formulations and a generally well-tolerated safety profile. We believe lefamulin represents a potentially important new treatment option for the five to six million adults in the United States diagnosed with CABP each year.

 

We submitted two NDAs to the FDA for the oral and IV formulations of lefamulin for the treatment of CABP in December 2018. The FDA has granted us a Prescription Drug User Fee Act, or PDUFA, target action date of August 19, 2019 for lefamulin. We

 

24


Table of Contents

 

also submitted a marketing authorization application for lefamulin for the treatment of community-acquired pneumonia in adults in Europe in May 2019. On June 24, 2019, we announced that the EMA determined that our MAA for lefamulin is valid. Validation of the MAA confirms that the submission is sufficiently complete to begin the formal review process and an opinion of the EMA Committee for Medicinal Products for Human Use (CHMP) is anticipated in the next 12 to 15 months. The two NDAs for lefamulin are supported by two pivotal, Phase 3 clinical trials (known as LEAP 1 and LEAP 2) that evaluated the safety and efficacy of IV and oral lefamulin compared to moxifloxacin in the treatment of adults with CABP, including the option to switch from IV to oral administration and a short course oral treatment with lefamulin. In both LEAP 1 and LEAP 2, lefamulin was demonstrated to be non-inferior to moxifloxacin, and met both the FDA and European Medicines Agency, or EMA, primary and secondary efficacy endpoints for the treatment of CABP. Lefamulin was also shown to be generally well-tolerated when administered either orally or intravenously.

 

On July 24, 2018, we completed the acquisition of Zavante Therapeutics, Inc., or Zavante, a privately-held late clinical-stage biopharmaceutical company focused on developing novel therapies to improve the outcomes of hospitalized patients. Zavante’s lead product candidate is CONTEPO™, fosfomycin for injection, previously referred to as ZTI-01 and ZOLYD.

 

CONTEPO is a novel, potentially, first-in-class investigational intravenous antibiotic in the United States with a broad spectrum of Gram-negative and Gram-positive activity, including activity against most contemporary multi-drug resistant, or MDR, strains such as extended-spectrum b-lactamase-, or ESBL, producing Enterobacteriaceae. IV fosfomycin has been approved for a number of indications and utilized for over 45 years in Europe to treat a variety of serious bacterial infections, including cUTIs. CONTEPO utilizes a new dosing regimen that optimizes its pharmacokinetics and pharmacodynamics. We believe these attributes, the extensive clinical experience worldwide and the positive efficacy and safety results from the Phase 2/3 clinical trial support CONTEPO as a first-line treatment for cUTIs, including acute pyelonephritis, or AP, suspected to be caused by MDR pathogens. At least 20% of cUTIs are caused by MDR bacteria and limited treatment options are available in the United States. In addition, non-clinical data have shown that CONTEPO acts in combination with certain other antibiotics to improve bacterial killing.

 

We submitted an NDA, for marketing approval of CONTEPO for the treatment of cUTI in adults in the United States, to the FDA in October 2018. The NDA submission is utilizing the 505(b)(2) regulatory pathway and is supported by a robust data package, including a pivotal Phase 2/3 clinical trial (known as ZEUS™), which met its primary endpoint of statistical non-inferiority to piperacillin/tazobactam in patients with cUTI, including AP. In April 2019, the FDA issued a Complete Response Letter (“CRL”) in connection with our NDA for CONTEPO for the treatment of cUTIs, including AP, stating that it was unable to approve the application in its current form.  Specifically, the CRL requested that we address issues related to facility inspections and manufacturing deficiencies at our API contract manufacturer.  We held a “Type A” meeting with the FDA in July 2019 to discuss its findings, but we cannot predict when CONTEPO will receive marketing approval, if at all. We will provide additional updates when we have an updated filing timeline or when we receive the FDA minutes from the Type A meeting.

 

Since inception, we have incurred significant operating losses. As of June 30, 2019, we had an accumulated deficit of $435.9 million. To date, we have financed our operations primarily through our 2018 equity offering, our term loan, our “at-the-market” offering facilities, our 2017 equity offering, our 2016 rights offering, our 2015 initial public offering, private placements of our equity securities, convertible loans and research and development support from governmental grants and loans. We have devoted substantially all of our efforts to research and development, including clinical trials. Our ability to generate profits from operations and remain profitable depends on our ability to successfully develop and commercialize drugs that generate significant revenue.

 

We expect to continue to incur significant expenses and increasing operating losses for at least the next several years. We also expect to continue to invest in critical pre-commercialization and supply chain activities prior to potentially receiving marketing approval for lefamulin and CONTEPO and making them available to patients.

 

Our expenses will increase if we suffer any regulatory delays or are required to conduct additional clinical trials to satisfy regulatory requirements. If we obtain marketing approval for lefamulin, CONTEPO or any other product candidate that we develop, in-license or acquire, we expect to incur significant commercialization expenses related to product sales, marketing, distribution and manufacturing.

 

In December 2018, we announced the closing of up to a $75.0 million term loan with Hercules Capital, Inc., or Hercules, $25.0 million of which was funded on the day of closing. Under the terms of the loan, in addition to the $25.0 million received at closing, we are eligible to receive up to an aggregate of $15.0 million in two tranches upon the approval by the FDA of the NDAs submitted for lefamulin and CONTEPO. We will also be eligible to receive an additional $30.0 million of aggregate term loan advances in three separate tranches upon the achievement of specified product revenue milestones. These additional tranches are at our discretion and may only be drawn upon during specified periods of time. The final $5.0 million tranche is available through December 31, 2021, subject to Hercules’ sole discretion. We are entitled to make interest-only payments through July 1, 2020, with incremental extensions through January 1, 2022 upon the achievement of specified performance milestones. We are required to repay the term loan after the interest only period based on a monthly amortization schedule, with a final maturity date occurring on June 1, 2023.

 

Based on our current plans, we do not expect to generate significant revenue unless and until we obtain marketing approval for, and commercialize, lefamulin and CONTEPO. We do not expect to obtain marketing approval for lefamulin before mid August 2019,

 

25


Table of Contents

 

if at all. For CONTEPO, we cannot predict the outcome of any interactions with the FDA that we may have or when CONTEPO will receive marketing approval, if at all. Accordingly, we will need to obtain substantial additional funding in connection with our continuing operations. Adequate additional financing may not be available to us on acceptable terms, or at all. If we are unable to raise additional capital when needed or on attractive terms, we could be forced to delay, reduce or eliminate our research and development programs or any future commercialization effort.

 

Acquisition of Zavante

 

On July 24, 2018, we acquired Zavante, or the Acquisition, a biopharmaceutical company focused on developing CONTEPO (fosfomycin for injection) to improve the outcomes of hospitalized patients pursuant to the Agreement and Plan of Merger dated July 23, 2018, or the Merger Agreement.

 

Upon the closing of the Acquisition, or the Closing, we issued 7,336,906 of our ordinary shares to former Zavante stockholders, which together with the 815,186 ordinary shares that were issued in July 2019 upon release of the Holdback Shares (as defined below) constituted approximately 19.9% of our ordinary shares outstanding as of immediately prior to the Closing, or the Upfront Shares.

 

Pursuant to the Merger Agreement, former Zavante stockholders and other equity holders, in the aggregate and subject to the terms and conditions of the Merger Agreement, will also be entitled to receive from us up to $97.5 million in contingent consideration, of which $25.0 million would become payable upon the first approval of an NDA from the FDA for fosfomycin for injection for any indication, or the Approval Milestone Payment, and an aggregate of up to $72.5 million would become payable upon the achievement of specified sales milestones, or the Net Sales Milestone Payments, with the first commercial milestone becoming payable when CONTEPO exceeds $125.0 million in net sales in a calendar year.

 

At our Extraordinary General Meeting of Shareholders held in October 2018, our shareholders approved the issuance of ordinary shares in settlement of potential milestone payment obligations that may become payable in the future to former Zavante stockholders, including the Approval Milestone Payment which will be settled in our ordinary shares. We also now have the right to settle the Net Sales Milestone Payments in our ordinary shares, except as otherwise provided in the Merger Agreement.

 

In addition, upon the Closing, we assumed certain liabilities and obligations, including contractual liabilities and obligations. Prior to the Acquisition, Zavante was obligated to make milestone payments to the former stockholders of $3.0 million upon marketing approval by the FDA with respect to any oral, intravenous or other form of fosfomycin, or the Zavante Products, and milestone payments of up to $26.0 million in the aggregate upon the occurrence of various specified levels of net sales with respect to the Zavante Products. In addition, Zavante is obligated to make annual royalty payments of a mid-single-digit percentage of net sales of Zavante Products, subject to adjustment based on net sales thresholds and with such percentage reduced to low single-digits if generic fosfomycin products account for half of the applicable market on a product-by-product and country-by-country basis. Zavante will also pay a mid-single-digit percentage of transaction revenue in connection with the consummation of the grant, sale, license or transfer of market exclusivity rights for a qualified infectious disease product (within the meaning of the 21st Century Cures Act, or the Cures Act) related to a Zavante Product.

 

Zavante had entered into a manufacturing and supply agreement with Ercros, S.A., pursuant to which Ercros, S.A. supplies to Zavante, on an exclusive basis, a blend of fosfomycin disodium and succinic acid, or API Mixture, for CONTEPO and, if CONTEPO is approved, will supply the commercial API Mixture for CONTEPO in the United States. In addition, Zavante had entered into a manufacturing and supply agreement with Fisiopharma, S.r.l. pursuant to which Zavante has an obligation to purchase a minimum percentage of its commercial requirements of CONTEPO in the United States. Zavante had also entered into a manufacturing and exclusive supply agreement with Laboratorios ERN, S.A., pursuant to which Laboratorios ERN, S.A. has agreed to supply Zavante with certain technical documentation and data as required for submission of an NDA or an abbreviated new drug application for CONTEPO and certain regulatory support in connection with the commercial sale and use of CONTEPO in the United States, and which provides for payments by Zavante to Laboratorios ERN, S.A. of a one-time cash payment upon the first commercial sale of CONTEPO and subsequent quarterly payments thereafter based on the number of vials of CONTEPO sold in the United States during each quarter.

 

In connection with the closing of the Acquisition, we have assumed other agreements entered into by Zavante, including, among others, an R&D office lease, a collaboration agreement governing the supply and manufacturing agreements described above and a commercial packaging agreement.

 

We accounted for the Acquisition as an asset acquisition as the arrangement did not meet the definition of a business pursuant to the guidance prescribed in Accounting Standards Codification, or ASC, Topic 805, Business Combinations. We concluded the Acquisition did not meet the definition of a business because the transaction principally resulted in the acquisition of the exclusive rights to IV fosfomycin in the U.S. which is a single identifiable asset and represents substantially all the fair value of the assets acquired.

 

We expensed the acquired intellectual property as of the acquisition date as in-process research and development with no alternative future uses. We recorded an in-process research and development expense of $32.0 million which represents $26.9 million for the fair value of the Upfront Shares, $4.9 million of transaction costs and $0.2 million of net liabilities assumed.

 

26


Table of Contents

 

License Agreement with Sinovant Sciences, Ltd.

 

In March 2018, we entered into a license agreement, or the Sinovant License Agreement, with Sinovant Sciences, Ltd., or Sinovant, an affiliate of Roivant Sciences, Ltd., to develop and commercialize lefamulin in the greater China region. As part of the Sinovant License Agreement, Nabriva Therapeutics Ireland DAC and Nabriva Therapeutics GmbH, our wholly owned subsidiaries, granted Sinovant an exclusive license to develop and commercialize, and a non-exclusive license to manufacture, certain products containing lefamulin, or the Licensed Products, in the People’s Republic of China, Hong Kong, Macau and Taiwan, which we refer to as the Territory. We retain development and commercialization rights in the rest of the world.

 

Under the Sinovant License Agreement, Sinovant and our subsidiaries have established a joint development committee, or the JDC, to review and oversee development and commercialization plans in the Territory. We received a $5.0 million upfront payment pursuant to the terms of the Sinovant License Agreement and will be eligible for up to an additional $91.5 million in milestone payments upon the achievement of certain regulatory and commercial milestone events related to lefamulin for CABP, plus an additional $4.0 million in milestone payments if any Licensed Product receives a second or any subsequent regulatory approval in the People’s Republic of China. The first milestone was a $1.5 million payment for the submission of a Clinical Trial Application, or CTA, by Sinovant to the Chinese Food and Drug Administration that was received in February 2019. The remaining milestone payments are tied to additional regulatory approvals and annual sales targets. In addition, we will be eligible to receive low double-digit royalties on sales, if any, of Licensed Products in the Territory.

 

Sinovant will be solely responsible for all costs related to developing, obtaining regulatory approval of and commercializing Licensed Products in the Territory and is obligated to use commercially reasonable efforts to develop, obtain regulatory approval for, and commercialize Licensed Product in the Territory. We are obligated to use commercially reasonable efforts to supply, pursuant to supply agreements to be negotiated by the parties, to Sinovant sufficient supply of lefamulin for Sinovant to manufacture finished drug products for development and commercialization of the Licensed Products in the Territory.

 

Unless earlier terminated, the Sinovant License Agreement will expire upon the expiration of the last royalty term for the last Licensed Product in the Territory, which we expect will occur in 2033. Following the expiration of the last royalty term, the license granted to Sinovant will become non-exclusive, fully-paid, royalty-free and irrevocable. The Sinovant License Agreement may be terminated in its entirety by Sinovant upon 180 days’ prior written notice at any time. Either party may, subject to specified cure periods, terminate the Sinovant License Agreement in the event of the other party’s uncured material breach. Either party may also terminate the Sinovant License Agreement under specified circumstances relating to the other party’s insolvency. We have the right to terminate the Sinovant License Agreement immediately if Sinovant does not reach certain development milestones by certain specified dates (subject to specified cure periods). The Sinovant License Agreement contemplates that the we will enter into ancillary agreements with Sinovant, including clinical and commercial supply agreements and a pharmacovigilance agreement.

 

We identified two performance obligations at inception: (1) the delivery of the licenses to Sinovant; and, (2) the participation in the JDC. The $5.0 million non-refundable upfront payment was allocated entirely to the delivery of the licenses as the JDC deliverable was deemed to be de minimis. In addition, since the first $1.5 million milestone payment is related to a submission of the CTA that is in the control of the parties’, we recorded such milestone as variable consideration allocated to the licenses at the inception of the arrangement as we believed it was probable to be met and received. The future regulatory and commercial milestone payments will be recorded during the period the milestone is probable of achievement.

 

27


Table of Contents

 

License Agreement with Sunovion Pharmaceutics Canada Inc

 

In March 2019, we entered into a license and commercialization agreement, or the Sunovion License Agreement, with Sunovion Pharmaceuticals Canada Inc., or Sunovion. As part of the Sunovion License Agreement, Nabriva Therapeutics Ireland DAC, our wholly owned subsidiary, granted Sunovion an exclusive license under certain patent rights, trademark rights and know-how to commercialize certain products containing lefamulin in the forms clinically developed by us or any of our affiliates, or the Licensed Products, in Canada in all uses in humans in community-acquired bacterial pneumonia and in any other indication for which the Licensed Products have received regulatory approval in Canada.

 

We have identified the delivery of the exclusive license to Sunovion as the one material performance obligation at inception.  We have determined that the Sunovion License Agreement provides for a distinct license of functional intellectual property that Sunovion has obtained control of. The non-refundable upfront payment of $1.0 million that we received in connection with the Sunovion License Agreement was allocated entirely to the delivery of the license.

 

Any future regulatory and commercial milestone payments under the Sunovion License Agreement will be recorded during the period the milestone is probable of achievement.

 

Financial Operations Overview

 

Revenue

 

To date, we have not generated any revenues from product sales. Based on our current plans, we do not expect to generate significant revenue unless and until we obtain marketing approval for, and commercialize, lefamulin and CONTEPO. We do not expect to obtain marketing approval for lefamulin before mid August 2019, if at all. In April 2019, the FDA issued a Complete Response Letter in connection with our NDA for CONTEPO for the treatment of cUTIs, including AP, stating that it was unable to approve the application in its current form. We held a “Type A” meeting with the FDA to discuss its findings in July 2019 but we cannot predict when CONTEPO will receive marketing approval, if at all. If our development efforts result in clinical success and regulatory approval, we may also enter into collaboration agreements with third parties and we may generate revenue from those agreements.

 

Our revenue during the six months ended June 30, 2018 consisted principally of the collaboration revenues recorded from the Sinovant License Agreement and includes a $5.0 million non-refundable upfront payment received as consideration for entering into the Sinovant License Agreement, as well as $1.5 million of variable consideration related to a milestone payment that we believed was probable to be met and was received in the first quarter of 2019. Our revenue during the six months ended June 30, 2019 included the $1.0 million upfront payment from Sunovion which we received in April 2019. Our revenue during the three and six months ended June 30, 2018 and 2019 also includes governmental research premiums, non-refundable government grants and the benefit of government loans at below-market interest rates. See “—Critical Accounting Policies.”

 

Research and Development Expenses

 

Research and development expenses represented 51.3% and 36.8% of our total operating expenses for the six months ended June 30, 2018 and 2019, respectively.

 

For each of our research and development programs, we incur both direct and indirect expenses. Direct expenses include third party expenses related to these programs such as expenses for manufacturing services, non-clinical and clinical studies and other third-party development services. Indirect expenses include salaries and related costs, including stock-based compensation, for personnel in research and development functions, infrastructure costs allocated to research and development operations, costs associated with obtaining and maintaining intellectual property associated with our research and development operations, laboratory consumables, consulting fees related to research and development activities and other overhead costs. We utilize our research and development staff and infrastructure resources across multiple programs, and many of our indirect costs historically have not been specifically attributable to a single program. Accordingly, we cannot state precisely our total indirect costs incurred on a program-by-program basis.

 

The following table summarizes our direct research and development expenses by program and our indirect costs.

 

 

 

Six Months Ended
June 30,

 

(in thousands)

 

2018

 

2019

 

Direct Costs

 

 

 

 

 

Lefamulin

 

$

10,543

 

$

5,659

 

CONTEPO

 

 

2,115

 

FDA filing fee refund

 

 

(2,589

)

Other programs and initiatives

 

33

 

505

 

Indirect Costs

 

9,420

 

9,922

 

Total

 

$

19,996

 

$

15,612

 

 

28


Table of Contents

 

We expect to continue to incur research and development expenses in connection with required regulatory activities, our activities related to our ongoing pediatric studies of lefamulin for the treatment of CABP and of CONTEPO for the treatment of cUTI, the possible pursuit of the clinical development of lefamulin and CONTEPO for additional indications and engagement in earlier stage research and development activities. It is difficult to estimate the duration and completion costs of our research and development programs or whether we will pursue additional indications for lefamulin or CONTEPO.

 

The successful development and commercialization of any of our product candidates is highly uncertain. This is due to the numerous risks and uncertainties associated with product development and commercialization, including the uncertainty of:

 

·                                          the scope, progress, costs and results of clinical trials and other research and development activities;

 

·                                          the costs, timing and outcome of regulatory review of our product candidates;

 

·                                          the efficacy and potential advantages of our product candidates compared to alternative treatments, including any standard of care, and our ability to achieve market acceptance for any of our product candidates that receive marketing approval;

 

·                                          the costs and timing of commercialization activities, including product sales, marketing, distribution and manufacturing, for any of our product candidates that receive marketing approval; and

 

·                                          the costs and timing of preparing, filing and prosecuting patent applications, maintaining, enforcing and protecting our intellectual property rights and defending against any intellectual property-related claims.

 

A change in the outcome of any of these variables with respect to the development of our product candidates could result in a significant change in the costs and timing associated with the development of that product candidate. For example, if the FDA or another regulatory authority were to require us to conduct clinical trials or other testing beyond those that we have completed or currently contemplate will be required for the completion of clinical development of any product candidate, we could be required to expend significant additional resources and time on the completion of clinical development of that product candidate.

 

General and Administrative Expenses

 

General and administrative expenses represented 48.7% and 63.2% of our total operating expenses for the six months ended June 30, 2018 and 2019, respectively.

 

General and administrative expenses consist primarily of salaries and related costs, including stock-based compensation not related to research and development activities for personnel in our finance, information technology, commercial, medical affairs and administrative functions. General and administrative expenses also include costs related to professional fees for auditors, lawyers and tax advisors and consulting fees not related to research and development operations, as well as functions that are partly or fully outsourced by us, such as accounting, payroll processing and information technology.

 

We expect general and general administrative expenses to increase with the expansion of our staff and management team in anticipation of the commercialization of lefamulin and CONTEPO, particularly commercial, medical affairs, technical operations, finance, human resources, information technology, compliance and business development functions.

 

Critical Accounting Policies

 

Our consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principles. The preparation of our financial statements and related disclosures requires us to make estimates, assumptions and judgments that affect the reported amount of assets, liabilities, revenue, costs and expenses, and related disclosures. Our critical accounting policies are described under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations— Critical Accounting Policies” in our Annual Report on Form 10-K for the year ended December 31, 2018. During the six months ended June 30, 2019, there were no material changes to our critical accounting policies, other than as described in Note 2 to our unaudited interim consolidated financial statements included elsewhere in this Form 10-Q.

 

Results of Operations

 

Comparison of Three Months Ended June 30, 2018 and 2019

 

 

 

Three Months Ended June 30,

 

 

 

(in thousands)

 

2018

 

2019

 

Change

 

Consolidated Operations Data:

 

 

 

 

 

 

 

Revenues

 

$

847

 

$

525

 

$

(322

)

Costs and Expenses:

 

 

 

 

 

 

 

Research and development

 

(9,717

)

(8,074

)

1,643

 

General and administrative

 

(8,837

)

(13,427

)

(4,590

)

Total operating expenses

 

(18,554

)

(21,501

)

(2,947

)

Loss from operations

 

(17,707

)

(20,976

)

(3,269

)

Other income (expense):

 

 

 

 

 

 

 

Other income (expense), net

 

(141

)

56

 

197

 

Interest income (expense), net

 

12

 

(832

)

(844

)

Loss before income taxes

 

(17,836

)

(21,752

)

(3,916

)

Income tax benefit

 

48

 

45

 

(3

)

Net loss

 

$

(17,788

)

$

(21,707

)

$

(3,919

)

 

29


Table of Contents

 

Revenues

 

Revenues decreased by $0.3 million from $0.8 million for the three months ended June 30, 2018 to $0.5 million for the three months ended June 30, 2019, primarily due to a decrease in grant revenue from research premiums provided to us by the Austrian government, which decreased by $0.3 million as a result of a decrease in our research and development expenses for which we can receive grant revenue.

 

Research and Development Expenses

 

Research and development expenses decreased by $1.6 million from $9.7 million for the three months ended June 30, 2018 to $8.1 million for the three months ended June 30, 2019. The decrease was primarily due a $1.5 million decrease in research materials and purchased services related to the development of lefamulin and a $0.5 million decrease in research consulting fees, partly offset by a $0.2 million increase in staff costs due to the addition of employees and a $0.2 million increase in travel and other research and development costs.

 

General and Administrative Expenses

 

General and administrative expense increased by $4.6 million from $8.8 million for the three months ended June 30, 2018 to $13.4 million for the three months ended June 30, 2019. The increase was primarily due to a $1.9 million increase in staff costs due to the addition of employees in anticipation of commercial launch, a $1.0 million increase in stock-based compensation expense, a $0.8 million increase in external consultancy expenses, a $0.4 million increase in infrastructure expenses, a $0.1 million increase in travel expenses and a $0.4 million increase in other corporate costs.

 

Other Income (Expense), net

 

Other income (expense), net increased by $197,000 from a $141,000 expense for the three months ended June 30, 2018, to a $56,000 income for the three months ended June 30, 2019 primarily due to re-measurements of our foreign currency account balances.

 

Interest Income (Expense), net

 

During the three months ended June 30, 2019, net interest expense increased by $0.8 million to $0.8 million over the same period in prior year due to higher interest expense on our term loan with Hercules and lower interest earned on cash and cash equivalents.

 

Income Tax Benefit

 

Our income tax benefit was $45,000 for the three months ended June 30, 2018 compared to $48,000 tax benefit for the three months ended June 30, 2019.

 

Comparison of Six Months Ended June 30, 2018 and 2019

 

 

 

Six Months Ended June 30,

 

 

 

(in thousands)

 

2018

 

2019

 

Change

 

Consolidated Operations Data:

 

 

 

 

 

 

 

Revenues

 

$

8,398

 

$

2,228

 

$

(6,170

)

Costs and Expenses:

 

 

 

 

 

 

 

Research and development

 

(19,996

)

(15,612

)

4,384

 

General and administrative

 

(18,973

)

(26,836

)

(7,863

)

Total operating expenses

 

(38,969

)

(42,448

)

(3,479

)

Loss from operations

 

(30,571

)

(40,220

)

(9,649

)

Other income (expense):

 

 

 

 

 

 

 

Other income (expense), net

 

(118

)

126

 

244

 

Interest income (expense), net

 

17

 

(1,721

)

(1,738

)

Loss before income taxes

 

(30,672

)

(41,815

)

(11,143

)

Income tax expense

 

(458

)

(109

)

349

 

Net loss

 

$

(31,130

)

$

(41,924

)

$

(10,794

)

 

30


Table of Contents

 

Revenues

 

Revenues decreased by $6.2 million from $8.4 million for the six months ended June 30, 2018 to $2.2 million for the six months ended June 30, 2019, primarily due to a decrease in collaboration revenue of $5.5 million. Grant revenue from research premiums provided to us by the Austrian government decreased by $0.8 million as a result of a decrease in our research and development expenses for which we can receive grant revenue.

 

Research and Development Expenses

 

Research and development expenses decreased by $4.4 million from $20.0 million for the six months ended June 30, 2018 to $15.6 million for the six months ended June 30, 2019. The decrease was primarily due to a $2.6 million refund of payment of the NDA fees to the FDA for CONTEPO, a $3.0 million decrease in research materials and purchased services related to the development of lefamulin and a $0.2 million decrease in stock-based compensation expense, partly offset by a $0.2 million increase in research consulting fees, a $0.8 million increase in staff costs due to the addition of employees, a $0.4 million increase in travel and other research and development costs.

 

General and Administrative Expenses

 

General and administrative expense increased by $7.8 million from $19.0 million for the six months ended June 30, 2018 to $26.8 million for the six months ended June 30, 2019. The increase was primarily due to a $3.7 million increase in staff costs due to the addition of employees in anticipation of commercial launch, a $1.9 million increase in stock-based compensation expense, a $1.4 million increase in external consultancy expenses, a $0.4 million increase in infrastructure expenses, a $0.3 million increase in travel expenses and a $0.1 million increase in other corporate costs.

 

Other Income (Expense), net

 

Other income (expense), net increased by $244,000 from a $118,000 expense for the six months ended June 30, 2018, to a $126,000 income for the six months ended June 30, 2019 primarily due to re-measurements of our foreign currency account balances.

 

Interest Income (Expense), net

 

During the six months ended June 30, 2019, net interest expense increased by $1.7 million to $1.7 million over the same period in the prior year due to higher interest expense on our term loan with Hercules and lower interest earned on cash and cash equivalents.

 

Income Tax Expense

 

Our income tax expense was $458,000 for the six months ended June 30, 2018 compared to $109,000 for the six months ended June 30, 2019. The income tax expense in both periods represents the current tax expense of our foreign subsidiaries.

 

Liquidity and Capital Resources

 

Since our inception, we have incurred net losses and generated negative cash flows from our operations. To date, we have financed our operations through the sale of equity securities, including our initial public offering, public follow-on offerings and private placements of our equity securities, convertible and term debt financings, payments from a collaboration partner and research and development support from governmental grants and loans.

 

In December 2018, we announced the closing of up to a $75.0 million term loan with Hercules, or the Loan Agreement, $25.0 million of which was funded on the day of closing. Under the terms of the loan, in addition to the $25.0 million received at closing, we are eligible to receive up to an aggregate of $15.0 million in two tranches upon the approval by the FDA of the NDAs recently submitted for lefamulin and CONTEPO. We will also be eligible to receive an additional $30.0 million of aggregate term loan advances in three separate tranches upon the achievement of specified product revenue milestones. These additional tranches are at our discretion and may only be drawn upon during specified periods of time. The final $5.0 million tranche is available through December 31, 2021, subject to the lenders’ sole discretion. We are entitled to make interest-only payments through July 1, 2020, with incremental extensions through January 1, 2022 upon the achievement of specified performance milestones. We are required to repay the term loan after the interest only period based on a monthly amortization schedule, with a final maturity date occurring on June 1, 2023. The term loan bears interest at an annual rate equal to the greater of 9.80% and 9.80% plus the prime rate of interest minus

 

31


Table of Contents

 

5.50%. The Loan Agreement provides for interest-only payments through July 1, 2020, which may be incrementally extended from time to time upon the occurrence of certain conditions through January 1, 2022, and repayment of the aggregate outstanding principal balance of the term loan thereafter in monthly installments through June 1, 2023. In addition, we are required to pay a fee of 6.95% of the aggregate amount of advances under the Loan Agreement at maturity. At our option, we may elect to prepay any portion of the outstanding term loan that is greater than or equal to $5.0 million by paying such portion of the principal balance and all accrued and unpaid interest thereon plus a prepayment charge equal to the following percentage of the principal amount being prepaid: (i) 3.0% if the term loan is prepaid during the first 12 months following the initial closing, (ii) 2.0% if the term loan is prepaid after 12 months following the initial closing but before 24 months following the initial closing and (iii) 1.0% if the term loan is prepaid any time thereafter but prior to the final maturity date. We are also required to satisfy certain financial covenants, including an obligation to maintain specified minimum amounts of cash and cash equivalents in accounts pledged to Hercules.

 

In March 2018, we entered into a Controlled Equity OfferingSM Sales Agreement, or the Cantor ATM Agreement, with Cantor Fitzgerald & Co., or Cantor, pursuant to which, from time to time, we could previously offer and sell our ordinary shares having aggregate gross proceeds of up to $50.0 million through Cantor. We terminated the Cantor ATM Agreement effective as of June 24, 2019. We did not incur any termination penalties as a result of the termination of the Cantor ATM Agreement. As of the effective date of the termination of the Cantor ATM Agreement, we had issued and sold an aggregate of 10,316,190 of our ordinary shares pursuant to the Cantor ATM Agreement for aggregate gross proceeds of $37.8 million and net proceeds of $36.3 million, after deducting commissions and offering expenses. The approximately $12.2 million of ordinary shares that had been available for sale pursuant to the Cantor ATM Agreement remained unsold at the time of its termination During the second quarter of 2019, under the Cantor ATM Agreement, we issued and sold an aggregate of 1,221,273 ordinary shares and received gross proceeds of $3.5 million and net proceeds of $3.4 million.

 

On June 25, 2019, we entered into an Open Market Sale AgreementSM, or the Jefferies ATM Agreement, with Jefferies LLC, or Jefferies, as agent, pursuant to which, from time to time, we may offer and sell ordinary shares for aggregate gross sale proceeds of up to $50.0 million through Jefferies by any method permitted that is deemed an “at the market offering” as defined in Rule 415(a)(4) promulgated under the Securities Act of 1933, as amended. From June 25, 2019 through the date of this filing, we issued and sold an aggregate of 688,732 ordinary shares pursuant to the Jefferies ATM Agreement and received gross proceeds of $1.6 million and net proceeds of $1.6 million, after deducting commissions to Jefferies and other offering expenses.

 

As of June 30, 2019, we had cash and cash equivalents and short-term investments of $73.9 million.

 

Cash Flows

 

Comparison of Six Months Ended June 30, 2018 and 2019

 

 

 

Six Months Ended June,

 

(in thousands)

 

2018

 

2019

 

Net cash provided by (used in):

 

 

 

 

 

Operating activities

 

$

(33,360

)

$

(41,748

)

Investing activities

 

(283

)

(15,057

)

Financing activities

 

22,218

 

13,428

 

Effects of foreign currency translation on cash

 

(91

)

40

 

Net decrease in cash and cash equivalents

 

$

(11,516

)

$

(43,337

)

 

Operating Activities

 

Cash flow used in operating activities increased by $8.4 million from $33.4 million for the six months ended June 30, 2018 to $41.7 million for the six months ended June 30, 2019 primarily due to a $8.5 million increase in net loss, after adjustments for non-cash amounts included in net loss, offset by a decrease in working capital of $0.2 million primarily due to changes in accrued expenses and other current liabilities.

 

Investing Activities

 

Cash flow used in investing activities increased by $14.8 million from $0.3 million for the six months ended June 30, 2018 to $15.1 million for the six months ended June 30, 2019 primarily due to the purchase of available-for-sale financial securities.

 

Financing Activities

 

Cash flow generated from financing activities decreased by $8.8 million from $22.2 million for the six months ended June 30, 2018 to $13.4 million for the six months ended June 30, 2019 consisting primarily of proceeds, net of commissions, related to our ATM Agreement.

 

32


Table of Contents

 

Operating and Capital Expenditure Requirements

 

We anticipate that our expenses will increase as we continue to invest in critical pre-commercialization activities prior to obtaining marketing approval for lefamulin and CONTEPO. If we obtain marketing approval for lefamulin, CONTEPO or any other product candidate that we develop, in-license or acquire, we expect to incur significant additional commercialization expenses related to product sales, marketing, distribution and manufacturing. In addition, our expenses will increase if we suffer any regulatory delays or are required to conduct additional clinical trials to satisfy regulatory requirements.

 

In addition, our expenses will increase if and as we:

 

·                               initiate or continue the research and development of lefamulin and CONTEPO for additional indications and of our other product candidates;

 

·                               seek to discover and develop additional product candidates;

 

·                               seek marketing approval for any product candidates that successfully complete clinical development;

 

·                               continue to establish a medical affairs, sales, marketing and distribution infrastructure and build up inventory of finished product and its components to commercialize any product candidates for which we receive marketing approval;

 

·                               in-license or acquire other products, product candidates or technologies;

 

·                               maintain, expand and protect our intellectual property portfolio;

 

·                               establish and expand manufacturing arrangements with third parties;

 

·                               draw additional funds under the Loan Agreement with Hercules;

 

·                               expand our physical presence in the United States and Ireland; and,

 

·                               add operational, financial and management information systems and personnel, including personnel to support our product development, our operations as a public company and our planned commercialization efforts.

 

We expect that our existing cash, cash equivalents and short-term investments as of June 30, 2019, proceeds from the sale of ordinary shares under the Jefferies ATM Agreement from June 30, 2019 until the date of this filing of $1.6 million and anticipated research premiums from the Austrian government for our qualified research and development expenditures will be sufficient to enable us to fund our operating expenses, debt service obligations and capital expenditure requirements into the second quarter of 2020. We have based this estimate on assumptions that may prove to be wrong, and we could use our capital resources sooner than we currently expect. This estimate assumes, among other things, that we do not obtain any additional funding through grants and clinical trial support, collaboration agreements, equity or debt financings, including additional advances under the Loan Agreement with Hercules. We may be eligible to borrow up an additional $50.0 million under our Loan Agreement with Hercules if we achieve specified regulatory and product revenue milestones, including $10.0 million that we will be eligible to borrow upon the approval by the FDA of an NDA for lefamulin and $5.0 million that we will be eligible to borrow upon the approval by the FDA of an NDA for CONTEPO.

 

We expect to seek additional funding in future periods for purposes of investment in our commercial and medical affairs organization, as well as investing in our supply chain, in an effort to enhance the potential commercial launch of lefamulin and CONTEPO.

 

Our future capital requirements will depend on many factors, including:

 

·                               the costs and timing of process development and manufacturing scale-up activities associated with lefamulin and CONTEPO;

 

·                               the costs, timing and outcome of regulatory review of lefamulin and CONTEPO;

 

·                               the costs of commercialization activities for lefamulin and CONTEPO if we receive, or expect to receive, marketing approval, including the costs and timing of establishing product sales, marketing, distribution and outsourced manufacturing capabilities, including the costs of building finished product inventory and its components in preparation of initial marketing of lefamulin and CONTEPO;

 

33


Table of Contents

 

·                               subject to receipt of marketing approval, revenue received from commercial sales of lefamulin and CONTEPO;

 

·                               the costs of potentially developing lefamulin and CONTEPO for the treatment of additional indications;

 

·                               our ability to establish collaborations on favorable terms, if at all;

 

·                               the scope, progress, results and costs of product development of any other product candidates that we may develop;

 

·                               the extent to which we in-license or acquire rights to other products, product candidates or technologies;

 

·                               the costs of preparing, filing and prosecuting patent applications, maintaining and protecting our intellectual property rights and defending against intellectual property-related claims;

 

·                               the continued availability of Austrian governmental grants;

 

·                               the need to satisfy interest and principal obligations in our debt facility;

 

·                               the rate of the expansion of our physical presence in the United States and Ireland; and

 

·                               the costs of operating as a public company in the United States.

 

Conducting clinical trials is a time-consuming, expensive and uncertain process that takes years to complete, and we may never generate the necessary data or results required to obtain marketing approval and achieve product sales. Our commercial revenues, if any, will be derived from sales of lefamulin, CONTEPO or any other products that we successfully develop, in-license or acquire, none of which are yet commercially available. In addition, if approved, lefamulin, CONTEPO, or any other product candidate that we develop, in-license or acquire may not achieve commercial success. Accordingly, we will need to obtain substantial additional financing to achieve our business objectives. Adequate additional financing may not be available to us on acceptable terms, or at all. In addition, we may seek additional capital due to favorable market conditions or strategic considerations, even if we believe that we have sufficient funds for our current or future operating plans.

 

Until such time, if ever, as we can generate substantial product revenues, we expect to finance our cash needs through a combination of equity offerings, debt financings, collaborations, and funding from local and international government entities and non-government organizations in the disease areas addressed by our product candidates and marketing, distribution or licensing arrangements. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interest of our shareholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our shareholders. Additional debt 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.

 

If we raise additional funds through collaborations, strategic alliances or marketing, distribution or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates or to 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 product candidates that we would otherwise prefer to develop and market ourselves

 

Capital Expenditures

 

Capital expenditures were $168,000 and $57,000 for the six months ended June 30, 2018 and 2019, respectively. We made no significant investments in intangible assets during the six months ended June 30, 2018 and 2019. Currently, there are no material capital projects planned in 2019.

 

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 under SEC rules.

 

34


Table of Contents

 

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

We are exposed to a variety of financial risks in the ordinary course of our business: market risk, credit risk and liquidity risk. Our overall risk management program focuses on preservation of capital given the unpredictability of financial markets. These market risks are principally limited to interest rate and foreign currency fluctuations.

 

Market Risk

 

We do not have any significant credit risk exposure to any single counterparty or any group of counterparties having similar characteristics. The credit risk on liquid funds (bank accounts, cash balances, marketable securities and term deposits) is limited because the counterparties are banks with high credit ratings from international credit rating agencies. The primary objective of our investment activities is to preserve principal and liquidity while maximizing income without significantly increasing risk. We do not enter into investments for trading or speculative purposes.

 

We are exposed to foreign exchange risk arising from various currency exposures, primarily with respect to the euro and the British pound. Our functional currency is the U.S. dollar, but we receive payments and acquire materials, in each of these other currencies. We have not established any formal practice to manage the foreign exchange risk against our functional currency. However, we attempt to minimize our net exposure by buying or selling foreign currencies at spot rates upon receipt of new funds to facilitate committed or anticipated foreign currency transactions.

 

Interest rate risk may arise from short-term or long-term debt. In December 2018, we announced the closing of up to a $75.0 million term loan with Hercules, $25.0 million of which was funded on the day of closing. This initial draw and subsequent draws will have interest rates set based on US Prime Interest Rate at the time of the draw. If the US Prime Interest Rate increases, our interest rate will increase.

 

Due to the short-term nature of our investment portfolio, we do not believe an immediate 10% increase in interest rates would have a material effect on the fair market value of our portfolio, and accordingly we do not expect our operating results or cash flows to be materially affected by a sudden change in market interest rates.

 

Liquidity Risk

 

Since our inception, we have incurred net losses and generated negative cash flows from our operations. Based on our current operating plans, we expect that our existing cash, cash equivalents and short-term investments as of June 30, 2019, proceeds from the sale of ordinary shares under the Jefferies ATM Agreement from June 30, 2019 until the date of this filing of $1.6 million and anticipated research premiums from the Austrian government for our qualified research and development expenditures, will be sufficient to enable us to fund our operating expenses, debt service obligations and capital expenditure requirements into the second quarter of 2020. We have based this estimate on assumptions that may prove to be wrong, and we could use our capital resources sooner than we currently expect. This estimate assumes, among other things, that we do not obtain any additional funding through grants and clinical trial support, collaboration agreements, equity or debt financings, including additional advances under the Loan Agreement with Hercules. We may be eligible to borrow up an additional $50.0 million under our Loan Agreement with Hercules if we achieve specified regulatory and product revenue milestones, including $10.0 million that we will be eligible to borrow upon the approval by the FDA of an NDA for lefamulin and $5.0 million that we will be eligible to borrow upon the approval by the FDA of an NDA for CONTEPO. The accompanying interim consolidated financial statements have been prepared assuming we will continue as a going concern, which contemplates continuity of operations, the realization of assets and the satisfaction of liabilities and commitments in the normal course of business.

 

We expect to seek additional funding in future periods for purposes of investment in our commercial and medical affairs organization as well as investing in our supply chain, including building active pharmaceutical ingredient safety stock for the commercial supply of lefamulin and CONTEPO, in an effort to enhance the potential commercial launch of lefamulin and CONTEPO. While we have raised capital in the past, the ability to raise capital in future periods is not considered probable, as defined under the accounting standards.  As such, we may not consider the potential for future capital raises in our assessment of our ability to meet our obligations for the next twelve months.

 

Our expenses will increase if we suffer any regulatory delays or are required to conduct additional clinical trials to satisfy regulatory requirements. If we obtain marketing approval for lefamulin, CONTEPO or any other product candidate that we develop, we expect to incur significant commercialization expenses related to product sales, marketing, distribution and manufacturing. We will continue to invest in critical commercialization and supply chain activities prior to potentially receiving marketing approval and making lefamulin and CONTEPO available to patients. We have developed plans to mitigate this risk, which primarily consist of raising additional capital through a combination of equity or debt financings, new collaborations, and reducing cash expenditures.

 

35


Table of Contents

 

However, there can be no assurance that we will be successful in acquiring additional capital at level sufficient to fund our operations or on terms favorable to us. As a result, based on our available cash resources and the minimum cash required under the Loan Agreement raise substantial doubt about our ability to continue as a going concern for a period of one year from the date of this filing.

 

If we are unable to raise capital when needed or on attractive terms, we could be forced to delay, reduce to eliminate our research and development programs or any future commercialization effort.

 

ITEM 4.  CONTROLS AND PROCEDURES

 

Conclusions Regarding the Effectiveness of Disclosure Controls and Procedures

 

We have carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) under the supervision and the participation of the company’s management, which is responsible for the management of the internal controls, and which includes our Chief Executive Officer and Chief Financial Officer (our principal executive officer and principal financial officer, respectively). The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms.

 

Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Securities Exchange Act of 1934 is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives. Based upon our evaluation of our disclosure controls and procedures as of June 30, 2019, our Chief Executive Officer and Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were effective at a reasonable level of assurance.

 

Changes in Internal Control over Financial Reporting

 

There were no changes in our internal control over financial reporting (as defined in Exchange Act Rule 13a-15(f)) that occurred during the three months ended June 30, 2019 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

36


Table of Contents

 

PART II

 

ITEM 1.  LEGAL PROCEEDINGS

 

On May 8, 2019, a putative class action lawsuit was filed against us and our Chief Executive Officer in the United States District Court for the Southern District of New York, captioned Larry Enriquez v. Nabriva Therapeutics PLC, and Ted Schroeder, No. 19-cv-04183. The complaint purports to be brought on behalf of shareholders who purchased our securities between November 1, 2018 and April 30, 2019. The complaint generally alleges that we and our Chief Executive Officer violated Sections 10(b) and/or 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder by making allegedly false and/or misleading statements and omitting to disclose material facts concerning our submission of an NDA to the FDA for marketing approval of CONTEPO for the treatment of cUTI in the United States and the likelihood of such approval. The complaint seeks unspecified damages, attorneys’ fees, and other costs.

 

On May 22, 2019, a second putative class action lawsuit was filed against us and our Chief Executive Officer in the United States District Court for the Southern District of New York, captioned Anthony Manna v. Nabriva Therapeutics PLC, and Ted Schroeder, No. 19-cv-04713. The complaint purports to be brought on behalf of shareholders who purchased our securities between November 1, 2018 and April 30, 2019.  The allegations made in the Manna complaint are similar to those made in the Enriquez complaint, and the Manna complaint seeks similar relief. On May 24, 2019, these two lawsuits were consolidated by the court.  The court appointed a lead plaintiff and approved plaintiff’s selection of lead counsel on July 22, 2019.

 

We deny any and all allegations of wrongdoing and intend to vigorously defend against this lawsuit. We are unable, however, to predict the outcome of this matter at this time. Moreover, any conclusion of this matter in a manner adverse to us and for which it incurs substantial costs or damages not covered by our directors’ and officers’ liability insurance would have a material adverse effect on our financial condition and business. In addition, the litigation could adversely impact our reputation and divert management’s attention and resources from other priorities, including the execution of our business plan and strategies that are important to our ability to grow its business, any of which could have a material adverse effect on our business.

 

ITEM 1A.   RISK FACTORS

 

You should consider carefully the risks and uncertainties described below, together with all of the other information in this Form 10-Q. If any of the following risks are realized, our business, financial condition, results of operations and prospects could be materially and adversely affected. The risks described below are not the only risks facing us. Risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition, results of operations and/or prospects.

 

Risks Related to Our Financial Position and Need for Additional Capital

 

We have incurred significant losses since our inception. We expect to incur losses for at least the next several years and may never generate profits from operations or maintain profitability.

 

Since inception, we have incurred significant operating losses. Our net losses were $21.7 million for the three months ended June 30, 2019, $114.8 million for the year ended December 31, 2018 and $74.4 million for the year ended December 31, 2017. As of June 30, 2019, we had an accumulated deficit of $435.9 million. To date, we have financed our operations primarily through the sale of our equity securities, loans, including convertible loans, proceeds from business development transactions and research and development support from governmental grants and loans. We have devoted most of our efforts to research and development, including clinical trials. We have not developed any drugs that have received regulatory approval. We expect to continue to incur significant expenses and increasing operating losses for at least the next several years, including in connection with our regulatory approval efforts and commercialization of lefamulin and CONTEPO. The net losses we incur may fluctuate significantly from quarter-to-quarter and year-to-year.

 

We expect to continue to invest in critical pre-commercialization activities prior to potentially receiving marketing approval and making lefamulin and CONTEPO available to patients.

 

37


Table of Contents

 

We initiated our first Phase 3 global, pivotal clinical trial of lefamulin, which we refer to as Lefamulin Evaluation Against Pneumonia 1, or LEAP 1, in September 2015, and we initiated our second Phase 3 global, pivotal clinical trial of lefamulin, which we refer to as Lefamulin Evaluation Against Pneumonia 2, or LEAP 2, in April 2016. In September 2017, we announced positive topline results for LEAP 1. In May 2018, we announced positive topline results from LEAP 2. LEAP 2 evaluated the safety and efficacy of five days of oral lefamulin compared to seven days of oral moxifloxacin in adult patients with moderate community-acquired bacterial pneumonia, or CABP. We submitted two NDAs for marketing approval of lefamulin for the treatment of CABP in adults in the United States in December 2018. The FDA granted us a Prescription Drug User Fee Act, or PDUFA, target action date of August 19, 2019 for lefamulin. We also submitted a marketing authorization application, or MAA, for lefamulin for the treatment of community-acquired pneumonia, or CAP, in adults in Europe in May 2019, which the MAA determined was valid in June 2019. We also continue to characterize the clinical pharmacology of lefamulin. If we obtain marketing approval of lefamulin for CABP or another indication, we also expect to incur significant additional sales, marketing, distribution and manufacturing expenses.

 

In June 2016, the first patient was enrolled by Zavante in its pivotal ZTI-01 Efficacy and Safety Study of CONTEPO, which we refer to as the ZEUS Study. In April 2017, Zavante announced positive topline results of the ZEUS Study. The ZEUS Study was a multicenter, randomized, parallel-group, double-blind Phase 2/3, pivotal clinical trial designed to evaluate safety, tolerability, efficacy and pharmacokinetics of seven days of treatment, or up to fourteen days of treatment for patients with concurrent bacteremia, with CONTEPO compared to piperacillin-tazobactam, or PIP-TAZ, in the treatment of hospitalized adults with cUTI or acute pyelonephritis, or AP. We submitted an NDA for marketing approval of CONTEPO for the treatment of cUTI in adults in the United States, utilizing the FDA’s 505(b)(2) pathway, in October 2018.  In June 2018, Zavante initiated a Phase 1, non-comparative, open-label study of the pharmacokinetics and safety of a single dose of CONTEPO in pediatric subjects less than 12 years of age receiving standard-of-care antibiotic therapy for proven or suspected infection or peri-operative prophylaxis. We anticipate completing enrollment in this study in late 2020. We also intend to continue to characterize the clinical pharmacology of CONTEPO. In April 2019, the FDA issued a Complete Response Letter in connection with our NDA for CONTEPO for the treatment of cUTIs, including acute pyelonephritis, stating that it was unable to approve the application in its current form. The Complete Response Letter requested that issues related to facility inspections and manufacturing deficiencies at Nabriva’s active pharmaceutical ingredient contract manufacturer be addressed prior to the FDA approving the NDA. In response, we requested a “Type A” meeting with the FDA to discuss its findings, which occurred in July 2019. We cannot predict the outcome of any interactions with the FDA or when CONTEPO will receive marketing approval, if at all. If we obtain marketing approval of CONTEPO for cUTI, including AP, or another indication, we also expect to incur significant additional sales, marketing, distribution and manufacturing expenses.

 

On July 24, 2018, we completed our Acquisition of Zavante. Upfront consideration in connection with the Acquisition was 8,152,092 of our ordinary shares, including the 815,186 ordinary shares that were initially held back but which were issued in July 2019 upon release of the Holdback Shares pursuant to the terms of the Merger Agreement. Pursuant to the Merger Agreement, former Zavante stockholders are also entitled to receive from us up to $97.5 million in contingent consideration, consisting of the Approval Milestone Payment and the Net Sales Milestone Payment, subject to the terms and conditions of the Merger Agreement. In connection with the Acquisition, we assumed certain payment obligations under the Stock Purchase Agreement and Zavante manufacturing agreements acquired in the Acquisition. See “— Risks Related to Our Acquisition of Zavante—We may fail to realize the anticipated benefits of our Acquisition of Zavante, those benefits may take longer to realize than expected, and we may encounter significant integration difficulties.”

 

In addition, our expenses will increase if and as we:

 

·                               initiate or continue the research and development of lefamulin and CONTEPO for additional indications and of our other product candidates;

 

·                               seek to develop additional product candidates;

 

·                               seek marketing approval for any product candidates that successfully complete clinical development;

 

·                               are required by the FDA, EMA or other regulators to conduct additional clinical trials prior to or after approval;

 

·                               continue to build a medical affairs, sales, marketing and distribution infrastructure and scale up manufacturing capabilities to commercialize any product candidates for which we receive marketing approval;

 

·                               in-license or acquire other products, product candidates or technologies;

 

·                               maintain, expand and protect our intellectual property portfolio;

 

·                               expand our physical presence in the United States and Ireland;

 

·                               incur additional debt;

 

38


Table of Contents

 

·                               establish and expand manufacturing arrangements with third parties; and

 

·                               add operational, financial and management information systems and personnel, including personnel to support our product development, our operations as a larger company following the Acquisition and our operations as a public company in addition to our planned future commercialization efforts.

 

Our ability to generate profits from operations, and to become and remain profitable, depends on our ability to successfully develop and commercialize drugs that generate significant revenue. Based on our current plans, we do not expect to generate significant revenue unless and until we obtain marketing approval for, and commercialize, lefamulin and CONTEPO. We do not expect to obtain marketing approval for lefamulin before mid-August 2019, if at all. In April 2019, the FDA issued a Complete Response Letter in connection with our NDA for CONTEPO for the treatment of cUTIs, including AP, stating that it was unable to approve the application in its current form. In July 2019, we had a “Type A” meeting with the FDA to discuss its findings but we cannot predict the outcome of any interactions with the FDA or when CONTEPO will receive marketing approval, if at all. This will require us to be successful in a range of challenging activities, including:

 

·                               obtaining marketing approval for lefamulin and CONTEPO;

 

·                               expanding medical affairs, sales, marketing and distribution capabilities to effectively market and sell lefamulin and CONTEPO in the United States;

 

·                               establishing and maintaining collaboration, distribution or other marketing arrangements with third parties to commercialize lefamulin in markets outside the United States;

 

·                               protecting our rights to our intellectual property portfolio related to lefamulin and CONTEPO;

 

·                               establishing and maintaining arrangements for the manufacture of and obtaining commercial quantities of lefamulin and CONTEPO; and

 

·                               negotiating and securing adequate reimbursement from third-party payors for lefamulin and CONTEPO.

 

We may never succeed in these activities and, even if we do, may never generate revenues that are significant enough to generate profits from operations. Even if we do generate profits from operations, we may not be able to sustain or increase profitability on a quarterly or annual basis. Our failure to generate profits from operations, and to become and remain profitable, would decrease the value of our company and could impair our ability to raise capital, expand our business, maintain our research and development efforts, diversify our product offerings or continue our operations. A decline in the value of our company could also cause our shareholders to lose all or part of their investment.

 

We will need substantial additional funding. If we are unable to raise capital when needed or on acceptable terms, we could be forced to delay, reduce or eliminate our product development programs or future commercialization efforts.

 

We expect to continue to incur substantial costs in connection with our ongoing activities, particularly as we seek marketing approval for lefamulin, CONTEPO and, possibly, other product candidates and continue our research activities. Our expenses will increase if we suffer any regulatory delays or are required to conduct additional clinical trials to satisfy regulatory requirements. If we obtain marketing approval for lefamulin, CONTEPO or any other product candidate that we develop, in-license or acquire, we expect to incur significant commercialization expenses related to product sales, marketing, distribution and manufacturing.

 

Furthermore, we expect to continue to incur additional costs to service our current debt and any potential future draws on the Loan Agreement (as defined below) and costs associated with operating as a public company and as a company with a commercial rather than a research and development focus. Accordingly, we will need to obtain substantial additional funding in connection with our continuing operations. If we are unable to raise capital when needed or on attractive terms, we could be forced to delay, reduce or eliminate our research and development programs or any future commercialization efforts.

 

39


Table of Contents

 

We expect that our cash, cash equivalents and short-term investments as of June 30, 2019, proceeds from the sale of ordinary shares under the Jefferies ATM Agreement (as defined below) from June 30, 2019 until the date of this filing of $1.6 million and anticipated research premiums from the Austrian government for our qualified research and development expenditures, will be sufficient to enable us to fund our operating expenses, debt service obligations and capital expenditure requirements into the second quarter of 2020. We have based this estimate on assumptions that may prove to be wrong, and we could use our capital resources sooner than we currently expect. This estimate assumes, among other things, that we do not obtain any additional funding through grants and clinical trial support, collaboration agreements, equity or debt financings, including additional advances under the Loan Agreement with Hercules. We may be eligible to borrow up to an additional $50.0 million under our Loan Agreement with Hercules if we achieve specified regulatory and product revenue milestones, including $10.0 million that we will be eligible to borrow upon the approval by the FDA of an NDA for lefamulin and $5.0 million that we will be eligible to borrow upon the approval by the FDA of an NDA for CONTEPO.

 

We expect to seek additional funding in future periods for purposes of investment in our commercial and medical affairs organization, as well as investing in our supply chain in an effort to enhance the potential commercial launch of lefamulin and CONTEPO.

 

Our future capital requirements will depend on many factors, including:

 

·                               the costs and timing of process development and manufacturing scale-up activities associated with lefamulin and CONTEPO;

 

·                               the costs, timing and outcome of regulatory review of lefamulin and CONTEPO;

 

·                               the costs of commercialization activities for lefamulin and CONTEPO if we receive, or expect to receive, marketing approval, including the costs and timing of establishing product sales, marketing, distribution and outsourced manufacturing capabilities, including the costs of building finished product inventory and its components in preparation of initial marketing of lefamulin and CONTEPO;

 

·                               subject to receipt of marketing approval, revenue received from commercial sales of lefamulin and CONTEPO;

 

·                               the costs of developing lefamulin and CONTEPO for the treatment of additional indications;

 

·                               our ability to establish collaborations on favorable terms, if at all;

 

·                               the scope, progress, results and costs of product development of any other product candidates that we may develop;

 

·                               the extent to which we in-license or acquire rights to other products, product candidates or technologies;

 

·                               the costs of preparing, filing and prosecuting patent applications, maintaining and protecting our intellectual property rights and defending against intellectual property-related claims;

 

·                               the continued availability of Austrian governmental grants;

 

·                               the rate of the expansion of our physical presence in the United States and Ireland;

 

·                               interest expense on our debt and the eventual repayment of our debt obligations;

 

·                               the costs of operating as a company with a commercial rather than a research and development focus; and

 

·                               the costs of operating as a public company in the United States.

 

Our commercial revenues, if any, will be derived from sales of lefamulin, CONTEPO or any other products that we successfully develop, in-license or acquire, none of which we expect to be commercially available before mid-August 2019, if at all. In addition, if approved, lefamulin, CONTEPO or any other product candidate that we develop, in-license or acquire may not achieve commercial success. Accordingly, we will need to obtain substantial additional financing to achieve our business objectives.

 

Adequate additional financing may not be available to us on acceptable terms, or at all. In addition, we may seek additional capital due to favorable market conditions or strategic considerations, even if we believe that we have sufficient funds for our current or future operating plans.

 

40


Table of Contents

 

Raising additional capital may cause dilution to our security holders, restrict our operations or require us to relinquish certain rights to our technologies or product candidates.

 

Until such time, if ever, as we can generate substantial product revenues, we expect to finance our cash needs through a combination of equity offerings, debt financings, collaborations, and funding from local and international government entities and non-government organizations in the disease areas addressed by our product candidates and marketing, distribution or licensing arrangements. To the extent that we raise additional capital through the sale of equity or convertible debt securities, your ownership interest will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect your rights as a security holder. Additional debt 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. In addition, debt service obligations under any debt financings may limit the availability of our cash for other purposes, and we may be unable to make interest payments or repay the principal of such debt financings when due.

 

On June 25, 2019, we entered into an Open Market Sale AgreementSM, or the Jefferies ATM Agreement, with Jefferies LLC, or Jefferies, as agent, pursuant to which we may offer and sell ordinary shares, nominal value $0.01 per share, for aggregate gross sale proceeds of up to $50 million from time to time through Jefferies under an “at-the-market” offering program. As of the date of this filing, we have issued and sold an aggregate of 688,732 ordinary shares under the Jefferies ATM Agreement, for gross proceeds of $1.6 million, and net proceeds of $1.6 million, after deducting commissions and offering costs.  We previously entered into a Controlled Equity OfferingSM Sales Agreement, or the Cantor ATM Agreement, with Cantor Fitzgerald & Co. that we terminated effective as of June 24, 2019. The approximately $12.2 million of ordinary shares that had been available for sale pursuant to the Cantor ATM Agreement remained unsold at the time of its termination. If a large number of our ordinary shares is sold in the public market after they become eligible for sale or if we make additional sales under our “at-the-market” offering program, the sales could cause dilution to our security holders, reduce the trading price of our ordinary shares and impede our ability to raise future capital.

 

In addition, in connection with the closing of the Acquisition, we issued 7,336,906 of our ordinary shares to former Zavante stockholders as initial upfront consideration and following the one year anniversary of the closing of the Acquisition on July 25, 2019, we issued an additional 815,186 ordinary shares to the former Zavante Stockholders that had been subject to reduction in respect of certain indemnification and other obligations pursuant to the Merger Agreement. Such shares are able to be freely sold in the public market, subject to any requirements and restrictions, including any applicable volume limitations, imposed by Rule 144 under the Securities Act. In addition, the Merger Agreement provides that we may issue up to an additional $97.5 million in our ordinary shares to former Zavante stockholders upon the achievement of specified regulatory and commercial milestones in the future, and obligates us to provide registration rights with respect to the registration for resale of such additional ordinary shares that may become issuable upon the achievement of such milestones. The issuance of our ordinary shares to satisfy the milestone payments will cause dilution to our equity holders, and the sale or resale of these shares in the public market, or the market’s expectation of such sales, may result in an immediate and substantial decline in our stock price. Such a decline would adversely affect our investors and also might make it difficult for us to sell equity securities in the future at a time and at a price that we deem appropriate.

 

If we raise additional funds through collaborations, strategic alliances or marketing, distribution or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates or to 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 product candidates that we would otherwise prefer to develop and market ourselves.

 

Our limited operating history may make it difficult for you to evaluate the success of our business to date and to assess our future viability.

 

Our operations to date have been limited to organizing and staffing our company, developing and securing our technology, raising capital, undertaking preclinical studies and clinical trials of our product candidates, and preparing and filing NDAs for our product candidates. We have not yet demonstrated our ability to obtain marketing approvals, manufacture a commercial scale product, or arrange for a third party to do so on our behalf, or conduct sales and marketing activities necessary for successful product commercialization. Consequently, any predictions you make about our future success or viability may not be as accurate as they could be if we had a longer operating history.

 

In addition, as a new business, we may encounter unforeseen expenses, difficulties, complications, delays and other known and unknown factors. Also, we may encounter delays or difficulties in our efforts to, or fail to, successfully integrate the operations of Zavante into our business and CONTEPO into our business strategy. Moreover, we will need to transition from a company with a research and development focus to a company capable of supporting commercial activities. We may not be successful in such a transition.

 

41


Table of Contents

 

Our level of indebtedness and debt service obligations could adversely affect our financial condition and may make it more difficult for us to fund our operations.

 

On December 20, 2018, we entered into a Loan and Security Agreement, or the Loan Agreement, with Hercules Capital, Inc., as administrative agent, collateral agent and lender, pursuant to which an aggregate principal amount of up to $75.0 million is available to us. As of June 30, 2019, we have drawn down on the initial term loan advance under the Loan Agreement of $25.0 million.

 

All obligations under the Loan Agreement are secured by substantially all of our personal property, intellectual property and other assets owned or later acquired. This indebtedness may create additional financing risk for us, particularly if our business or prevailing financial market conditions are not conducive to paying off or refinancing our outstanding debt obligations at maturity. This indebtedness could also have important negative consequences, including:

 

·                               the need to repay our indebtedness by making payment of interest only initially and then interest and principal, which will reduce the amount of funds available to finance our operations, our research and development efforts and our general corporate activities; and

 

·                               our failure to comply with the restrictive covenants in the Loan Agreement or the occurrence of an event that has a material adverse effect on our business, operations, properties, assets, condition, our ability to pay any amounts due, the collateral securing our obligations under the Loan Agreement or the ability of Hercules to enforce any of its rights under the Loan Agreement could result in an event of default that, if not cured or waived, would accelerate our obligation to repay this indebtedness, and the lender could seek to enforce its security interest in the assets securing such indebtedness.

 

To the extent additional debt is added to our current debt levels, the risks described above could increase.

 

We may not have cash available to us in an amount sufficient to enable us to make interest or principal payments on our indebtedness when due.

 

Failure to satisfy our current and future debt obligations under the Loan Agreement could result in an event of default and, as a result, the lender under the Loan Agreement could accelerate all of the amounts due. In the event of an acceleration of amounts due under the Loan Agreement as a result of an event of default, we may not have sufficient funds or may be unable to arrange for additional financing to repay our indebtedness. In addition, the lenders could seek to enforce their security interests in the assets securing such indebtedness.

 

We are subject to certain restrictive covenants which, if breached, could have a material adverse effect on our business and prospects.

 

The Loan Agreement imposes operating and other restrictions on us. Such restrictions will affect, and in many respects limit or prohibit, our ability and the ability of any future subsidiary to, among other things:

 

·                               declare dividends or redeem or repurchase equity interests;

 

·                               incur additional indebtedness and liens;

 

·                               make loans and investments;

 

·                               engage in mergers, acquisitions and asset sales;

 

·                               undertake certain transactions with affiliates

 

·                               undergo a change in control;

 

·                               add or change business locations; and

 

·                               settle in cash potential milestone payment obligations that may become payable by us in the future to former security holders of Zavante.

 

We are also required to satisfy certain financial covenants, including an obligation to maintain specified minimum amounts of cash and cash equivalents in accounts pledged to Hercules. These restrictive covenants may prevent us from undertaking an action that we feel is in the best interests of our business. In addition, if we were to breach any of these restrictive covenants, Hercules could accelerate our indebtedness under the Loan Agreement or enforce its security interest against our assets, either of which would materially adversely affect our ability to continue to operate our business.

 

42


Table of Contents

 

We and our Chief Executive Officer have been named as defendants in a lawsuit that could result in substantial costs and divert management’s attention.

 

On May 8, 2019, a putative class action lawsuit was filed against us and our Chief Executive Officer.  The complaint generally alleges that we and our Chief Executive Officer violated Sections 10(b) and/or 20(a) of the Exchange Act and Rule 10b-5 promulgated thereunder by making allegedly false and/or misleading statements and omitting to disclose material facts concerning our submission of an NDA to the FDA for marketing approval of CONTEPO for the treatment of cUTI in the United States and the likelihood of such approval. The complaint seeks unspecified damages, attorneys’ fees, and other costs. On May 22, 2019, a second putative class action lawsuit was filed against us and our Chief Executive Officer.  The allegations made in that complaint are similar to those made in the May 8 complaint, and the complaint seeks similar relief. On May 24, 2019, the two actions were consolidated by the court. The court appointed a lead plaintiff and approved plaintiff’s selection of lead counsel on July 22, 2019. We and our Chief Executive Officer deny any and all allegations of wrongdoing and intend to vigorously defend against this lawsuit. We are unable, however, to predict the outcome of this matter at this time. Moreover, any conclusion of this matter in a manner adverse to us and for which we incur substantial costs or damages not covered by our directors’ and officers’ liability insurance would have a material adverse effect on our financial condition and business. In addition, the litigation could adversely impact our reputation and divert management and our board of directors’ attention and resources from other priorities, including the execution of our business plan and strategies that are important to our ability to grow our business, any of which could have a material adverse effect on our business. Additional lawsuits may be filed.

 

We have relied on, and expect to continue to rely on, certain government grants and funding from the Austrian government. Should these funds cease to be available, or our eligibility be reduced, or if we are required to repay any of these funds, this could impact our ongoing need for funding and the timeframes within which we currently expect additional funding will be required.

 

As a company that carried out extensive research and development activities, we have benefited from the Austrian research and development support regime, under which we were eligible to receive a research premium from the Austrian government equal to 14% (12% for the fiscal years 2016 and 2017 and 10%, in the case of fiscal years prior to 2016) of a specified research and development cost base. Qualifying expenditures largely comprised research and development activities conducted in Austria, however, the research premium was also available for certain related third-party expenses with additional limitations. We received research premiums of $4.7 million for the year ended December 31, 2017 and $5.9 million for the year ended December 31, 2016. We have not received any research premium for our qualified 2018 expenditures as of June 30, 2019. As we increase our personnel and expand our business outside of Austria, we may not be able to continue to claim research premiums to the same extent as we have in previous years or at all, as some research and development activities may no longer be considered to occur in Austria. As research premiums that have been paid out already may be audited by the tax authorities, there is a risk that parts of the submitted cost base may not be considered as eligible and therefore repayments may have to be made.

 

The intended efficiency of our corporate structure depends on the application of the tax laws and regulations in the countries where we operate, and we may have exposure to additional tax liabilities or our effective tax rate could change, which could have a material impact on our results of operations and financial position.

 

As a company with international operations, we are subject to income taxes, as well as non-income based taxes, in both the United States and various foreign jurisdictions. We have designed our corporate structure, the manner in which we develop and use our intellectual property, and our intercompany transactions between our subsidiaries in a way that is intended to enhance our operational and financial efficiency. The application of the tax laws and regulations of various countries in which we operate and to our global operations is subject to interpretation. We also must operate our business in a manner consistent with our corporate structure to realize such efficiencies. The tax authorities of the countries in which we operate may challenge our methodologies for valuing developed technology or for transfer pricing. If, for one or more of these reasons, tax authorities determine that the manner in which we operate results in our business not achieving the intended tax consequences, our effective tax rate could increase and harm our financial position and results of operations.

 

A change in the tax law in the jurisdictions in which we do business, including an increase in tax rates, an adverse change in the treatment of an item of income or expense, a decrease in tax rates in a jurisdiction in which we have significant deferred tax assets, or a new or different interpretation of applicable tax law could result in a material increase in tax expense.

 

Risks Related to Product Development and Commercialization

 

We depend heavily on the success of lefamulin, which we are developing for CABP and potentially other indications, and CONTEPO, which we are developing for cUTI, including AP. If we are unable to obtain marketing approvals for lefamulin or CONTEPO, or if thereafter we fail to commercialize lefamulin or CONTEPO or experience significant delays in doing so, our business will be materially harmed.

 

We have invested a significant portion of our efforts and financial resources in the development of lefamulin and, more recently, in CONTEPO. There remains a significant risk that we will fail to successfully develop lefamulin for CABP or any other indication or CONTEPO for cUTI or any other indication.

 

In September 2017, we announced positive topline results for LEAP 1. In May 2018, we announced positive topline results from LEAP 2. We submitted two new drug applications, or NDAs, for marketing approval of lefamulin for the treatment of CABP in adults in the United States in December 2018. We also submitted a marketing authorization application, or MAA, for lefamulin for the treatment of CAP in adults in Europe in May 2019. In mid-2018, we initiated a Phase 1, non-comparative, open-label study of the

 

43


Table of Contents

 

pharmacokinetics and safety of a single dose of IV lefamulin in pediatric subjects from birth to 18 years of age.

 

In June 2016, Zavante initiated the ZEUS Study. In April 2017, Zavante announced positive topline results of the ZEUS Study. We submitted an NDA for marketing approval of CONTEPO for the treatment of cUTI in adults in the United States, utilizing the FDA’s 505(b)(2) pathway, in October 2018.  In April 2019, the FDA issued a Complete Response Letter in connection with our NDA for CONTEPO for the treatment of cUTIs, including AP, stating that it was unable to approve the application in its current form. In July 2019, we had a “Type A” meeting with the FDA to discuss its findings but we cannot predict the outcome of any interactions with the FDA that we may have or when CONTEPO will receive marketing approval, if at all.

 

In June 2018, Zavante initiated a phase 1, non comparative, open label study of the pharmacokinetics and safety of a single dose of CONTEPO in pediatric subjects less than 12 years of age receiving standard of care antibiotic therapy for proven or suspected infection or peri operative prophylaxis. We anticipate completing enrollment in this study in late 2020. We also intend to continue to characterize the clinical pharmacology of CONTEPO.

 

If we obtain marketing approval of lefamulin for CABP, or any other indication, and CONTEPO for cUTI, including AP, or any other indication, we also expect to incur significant additional sales, marketing, distribution and manufacturing expenses.

 

Our ability to generate product revenues will depend heavily on our obtaining marketing approval for and commercializing lefamulin and CONTEPO when and as we expect, and our ability to successfully integrate Zavante into our business and CONTEPO into our business strategy. The success of lefamulin and CONTEPO will depend on a number of factors, including the following:

 

·                               establishing and maintaining arrangements with third-party manufacturers for commercial supply and receiving regulatory approval of our manufacturing processes and our third-party manufacturers’ facilities from applicable regulatory authorities;

 

·                               receipt of marketing approvals from applicable regulatory authorities for lefamulin for the treatment of CABP and CONTEPO for the treatment of cUTI, including AP;

 

·                               launching commercial sales of lefamulin and CONTEPO, if and when approved, in collaboration with third parties;

 

·                               acceptance of lefamulin and CONTEPO, if and when approved, by patients, the medical community and third-party payors;

 

·                               achieving approval of favorable prescribing information;

 

·                               effectively competing with other therapies;

 

·                               maintaining a continued acceptable safety profile of lefamulin and CONTEPO following approval;

 

·                               obtaining and maintaining patent and trade secret protection and regulatory exclusivity; and

 

·                               protecting our rights in our intellectual property portfolio.

 

Successful development of lefamulin and CONTEPO for the treatment of additional indications, if any, or for use in other patient populations and our ability, if they are approved, to broaden the labels for lefamulin and CONTEPO will depend on similar factors. If we do not achieve one or more of these factors in a timely manner or at all, we could experience significant delays or an inability to successfully commercialize lefamulin for CABP or for any other indication or CONTEPO for cUTI, including AP or for any other indication, which would materially harm our business.

 

If clinical trials of lefamulin, CONTEPO or any of our other product candidates fail to demonstrate safety and efficacy to the satisfaction of the U.S. Food and Drug Administration, or FDA, regulatory authorities in the European Union, or other regulatory authorities or do not otherwise produce favorable results, we may incur additional costs or experience delays in completing, or ultimately be unable to complete, the development and commercialization of lefamulin, CONTEPO or any other product candidate.

 

Before obtaining marketing approval from regulatory authorities for the sale of any product candidate, we must complete preclinical development and early clinical trials, including Phase 1 clinical trials, in addition to extensive later-stage Phase 3 clinical trials, to demonstrate the safety and efficacy of our product candidates in humans. Clinical testing is expensive, difficult to design and implement, can take many years to complete and is uncertain as to outcome. A failure of one or more clinical trials can occur at any stage of testing. The outcome of preclinical testing and early clinical trials may not be predictive of the success of later clinical trials, and interim results of a clinical trial do not necessarily predict final results. The design of a clinical trial can determine whether its results will support approval of a product, and flaws in the design of a clinical trial may not become apparent until the clinical trial is well advanced or completed. Moreover, preclinical and clinical data are often susceptible to varying interpretations and analyses, and many companies that have believed their product candidates performed satisfactorily in preclinical studies and clinical trials have nonetheless failed to obtain marketing approval of their products. In connection with the ZEUS Study in which CONTEPO met the primary endpoint of statistical non-inferiority versus piperacillin/tazobactam, Zavante conducted a post-hoc primary efficacy analysis of CONTEPO using results of blinded pulsed-field gel electrophoresis molecular typing of urinary tract pathogens. Regulatory authorities typically give greater weight to results from pre-specified analyses and less weight to results from post-hoc, retrospective

 

44


Table of Contents

 

analyses. While we believe this post-hoc analysis is illustrative information, the FDA may ultimately have a different interpretation of any of our data that may be based on such post-hoc analysis.

 

If we are required to conduct additional clinical trials or other testing or studies of lefamulin, CONTEPO or any other product candidate that we develop beyond those that we contemplate; if we are unable to successfully complete our clinical trials or other testing or studies; if the results of these trials, tests or studies are not positive or are only modestly positive; if there are safety concerns; or if they are otherwise not acceptable to the FDA, we may:

 

·                               be delayed in obtaining marketing approval for our product candidates;

 

·                               not obtain marketing approval at all;

 

·                               obtain approval for indications or patient populations that are not as broad as intended or desired;

 

·                               obtain approval with labeling that includes significant use or distribution restrictions or safety warnings, including boxed warnings;

 

·