Nabriva Therapeutics plc - Quarter Report: 2019 June (Form 10-Q)

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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)

 

 

 

+353 1 649 2000

(Registrant’s telephone number, including area code)

 

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

 

 

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.

 

 

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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

 

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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;

 

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·                              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.

 

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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.

 

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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.

 

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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.

 

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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.

 

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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.

 

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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.

 

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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.

 

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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

 

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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.

 

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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

 

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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.

 

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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.

 

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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.

 

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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		—

 

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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,

 

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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.

 

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