smmt-20210930

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

_________________

FORM 10-Q

_________________


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

For the quarterly period ended September 30, 2021


☐			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: 001-36866

_______________________________

Summit Therapeutics Inc.

(Exact name of registrant as specified in its charter)

_____________________


Delaware						37-1979717
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)

One Broadway, 14th Floor,

Cambridge, MA

(Address of principal executive offices)

02142

(Zip Code)

617-514-7149

(Registrant’s telephone number, including area code)

Not Applicable

(Former name or former address and former fiscal year, if changed since last report)

_________________

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


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.01 par value per share	SMMT	The Nasdaq Stock Market LLC

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

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

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

Non-accelerated filer	☒	Smaller reporting company	☒

Emerging growth company	☐

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

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

As of November 8, 2021, there were 97,714,447 shares of common stock, par value $0.01 per share, outstanding.


		Page

PART I
Item 1.	Financial Statements (Unaudited)
	Condensed Consolidated Balance Sheets as of September 30, 2021 and December 31, 2020	5
	Condensed Consolidated Statements of Comprehensive Loss for the three and ni ne months ended September 30, 2021 and 2020	6
	Condensed Consolidated Statements of Stockholders' Equity for the three and nine months ended S eptember 30, 2021 and 2020	7
	Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2021 and 2020	8
	Notes to Unaudited Condensed Consolidated Financial Statements	9
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	19
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	27
Item 4.	Controls and Procedures	28
PART II
Item 1.	Legal Proceedings	28
Item 1A.	Risk Factors	28
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	29
Item 3.	Defaults Upon Senior Securities	29
Item 4.	Mine Safety Disclosures	30
Item 5	Other Information	30
Item 6.	Exhibits	31
Signatures

INFORMATION REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q, or this Report, contains forward-looking statements that involve substantial risks and uncertainties. All statements contained in this 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,” “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 and conduct of our clinical trials of ridinilazole (formerly SMT19969) for the treatment and

reduction of recurrence of patients with Clostridioides difficile infection (formerly known as Clostridium difficile infection), including statements regarding the timing of initiation and completion of the clinical trials and the period during which the results of the clinical trials will become available;

• the timing of and our ability to obtain marketing approval of ridinilazole, and the ability of ridinilazole to meet existing or future regulatory standards;

• the timing and conduct of clinical trials for any other product candidates;

• the potential benefits of our Discuva Platform to identify new bacterial targets for drug discovery and development;

• our plans to conduct research and development and advance potential new mechanism antibiotic compounds identified and developed under our Discuva Platform;

• the potential benefits and future operation of our collaboration with the Biomedical Advanced Research and Development Authority, or BARDA;

• the potential benefits and future operation of our license and commercialization agreement with Eurofarma Laboratórios SA, or Eurofarma;

• our plans with respect to possible future collaborations and partnering arrangements;

• the potential benefits of possible future acquisitions or investments in other businesses, products or technologies;

• our plans to pursue research and development of other future product candidates;

• the potential advantages of ridinilazole and our other new mechanism antibiotics;

• the rate and degree of market acceptance and clinical utility of ridinilazole and our other new mechanism antibiotics;

• our estimates regarding the potential market opportunity for ridinilazole and our other new mechanism antibiotics;

• our sales, marketing and distribution capabilities and strategy;

• our ability to establish and maintain arrangements for manufacture of ridinilazole;

• our intellectual property position;

• our estimates regarding expenses, future revenues, capital requirements and needs for additional financing;

• the impact of government laws and regulations;

• our competitive position;

•our ability to continue as a going concern if we are not able to raise additional capital or curtail spending in accordance with management's plans; and

• the impact of the novel coronavirus pandemic (COVID-19) and the response to it.

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. We have included important factors in the cautionary statements included in this Report, particularly in the “Risk Factors” section in this Report, 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.

You should read this Report and the documents that we have filed as exhibits to this Report completely and with the understanding that our actual future results may be materially different from what we expect. We do not assume any obligation to update any forward-looking statements.

SPECIAL NOTE REGARDING THE REDOMICILIATION

On September 18, 2020, Summit Therapeutics Inc., a Delaware corporation, or New Summit, became the successor issuer to Summit Therapeutics plc, a public limited company incorporated under the laws of England and Wales with the Registrar of Companies of England and Wales, United Kingdom, or Old Summit, for certain purposes under both the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended, or the Exchange Act. Such succession occurred pursuant to a scheme of arrangement under UK law, which resulted in New Summit becoming the holding company of Old Summit (the predecessor registrant and former holding company) and its subsidiaries, which we refer to as the Redomiciliation Transaction. On September 18, 2020, Old Summit was converted into a private limited company under the laws of England and Wales and renamed Summit Therapeutics Ltd.

Unless the context requires otherwise, all references in this Report to "Summit," "the Summit Group," "the Company," "we," "our," "us," or similar terms on or prior to September 18, 2020 (the effective date of the Redomiciliation Transaction), refer to our predecessor, Summit Therapeutics plc, together with its subsidiaries.

All share and per share data for periods prior to the Redomiciliation Transaction in this filing have been retroactively reflected to be presented in shares of our common stock, par value $0.01 per share.

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements.

Summit Therapeutics Inc.

Condensed Consolidated Balance Sheets

(in thousands, except share and per share data)

(Unaudited)


	September 30, 2021		December 31, 2020
Assets
Current assets:
Cash	$	80,248	$	66,417
Accounts receivable	2,290		331
Prepaid expenses	8,409		9,547
Other current assets	1,191		1,523
Research and development tax credit receivable	10,072		9,856
Total current assets	102,210		87,674

Non-current assets:
Research and development tax credit receivable	11,314		—
Property and equipment, net	656		725
Right-of-use assets	1,884		554
Goodwill	2,001		2,030
Intangible assets, net	10,608		11,515
Total assets	$	128,673	$	102,498

Liabilities and stockholders' equity
Current liabilities:
Accounts payable	$	5,875	$	6,140
Accrued expenses	7,432		4,261
Other current liabilities	1,030		729
Lease liabilities	941		390
Deferred revenue	7,511		8,370

Total current liabilities	22,789		19,890

Non-current liabilities:
Deferred revenue	—		569
Lease liabilities	896		75
Other non-current liabilities	2,690		2,511
Total liabilities	26,375		23,045

Commitments and contingencies (Note 12)

Stockholders' equity:
Common stock, $0.01 par value: 250,000,000 shares authorized; 97,628,511 and 82,575,064 shares issued and outstanding at September 30, 2021 and December 31, 2020, respectively	976		826
Additional paid-in capital	377,213		293,367
Accumulated other comprehensive loss	(3,442)		(3,794)
Accumulated deficit	(272,449)		(210,946)
Total stockholders' equity	102,298		79,453
Total liabilities and stockholders' equity	$	128,673	$	102,498

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

Summit Therapeutics Inc.

Condensed Consolidated Statements of Comprehensive Loss

(in thousands, except share and per share data)

(Unaudited)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Revenue	$	1,309	$	181	$	1,558	$	675
Operating expenses:
Research and development	19,943		13,726		62,245		40,210
General and administrative	5,662		6,846		15,831		16,192
Impairment of intangible assets	—		859		—		859
Total operating expenses	25,605		21,431		78,076		57,261
Other operating income	4,810		4,309		16,379		14,949
Operating loss	(19,486)		(16,941)		(60,139)		(41,637)
Other (expense) income, net	(113)		(858)		(1,364)		2,289
Loss before income tax	(19,599)		(17,799)		(61,503)		(39,348)
Income tax benefit	—		56		—		192
Net loss	$	(19,599)	$	(17,743)	$	(61,503)	$	(39,156)
Net loss per share:
Basic and diluted	$	(0.20)	$	(0.26)	$	(0.68)	$	(0.58)
Weighted-average shares used to compute net loss per share:
Basic and diluted	97,452,628		67,231,900		90,360,713		67,227,184
Other comprehensive (loss) income:
Foreign currency translation adjustments	(863)		2,326		352		(2,350)
Comprehensive loss	$	(20,462)	$	(15,417)	$	(61,151)	$	(41,506)

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

Summit Therapeutics Inc.

Condensed Consolidated Statements of Stockholders' Equity

(in thousands, except share data)

(Unaudited)


	Three Months Ended September 30, 2021
	Common Stock			Additional Paid-In Capital		Accumulated Other Comprehensive Loss		Accumulated Deficit		Total Stockholders' Equity
	Shares	Amount
Balance at June 30, 2021	97,351,799	$	974	$	373,882	$	(2,579)	$	(252,850)	$	119,427
Rights offering of common stock, net of offering costs of $41	—	—		(41)		—		—		(41)
Issuance of common stock from exercise of stock options	276,712	2		728		—		—		730
Stock-based compensation	—	—		2,644		—		—		2,644
Foreign currency translation adjustment	—	—		—		(863)		—		(863)
Net loss	—	—		—		—		(19,599)		(19,599)
Balance at September 30, 2021	97,628,511	$	976	$	377,213	$	(3,442)	$	(272,449)	$	102,298

	Nine Months Ended September 30, 2021
	Common Stock			Additional Paid-In Capital		Accumulated Other Comprehensive (Loss)/Income		Accumulated Deficit		Total Stockholders' Equity
	Shares	Amount
Balance at December 31, 2020	82,575,064	$	826	$	293,367	$	(3,794)	$	(210,946)	$	79,453
Rights offering of common stock, net of offering costs of $159	14,312,976	143		74,698		—		—		74,841
Issuance of common stock from exercise of stock options	740,471	7		1,861		—		—		1,868
Stock-based compensation	—	—		7,184		—		—		7,184
Imputed interest expense on promissory note payable to a related party	—	—		103		—		—		103
Foreign currency translation adjustment	—	—		—		352		—		352
Net loss	—	—		—		—		(61,503)		(61,503)
Balance at September 30, 2021	97,628,511	$	976	$	377,213	$	(3,442)	$	(272,449)	$	102,298

	Three Months Ended September 30, 2020
	Common Stock			Additional Paid-In Capital		Accumulated Other Comprehensive (Loss)/Income		Accumulated Deficit		Total Stockholders' Equity
	Shares	Amount
Balance at June 30, 2020	67,231,900	$	672	$	242,034	$	(9,440)	$	(179,662)	$	53,604



Fractional shares issued from reverse stock split	3	—		—		—		—		—
Stock-based compensation	—	—		361		—		—		361
Foreign currency translation adjustment	—	—		—		2,326		—		2,326
Net loss	—	—		—		—		(17,743)		(17,743)
Balance at September 30, 2020	67,231,903	$	672	$	242,395	$	(7,114)	$	(197,405)	$	38,548

	Nine Months Ended September 30, 2020
	Common Stock			Additional Paid-In Capital		Accumulated Other Comprehensive Loss		Accumulated Deficit		Total Stockholders' Equity
	Shares	Amount
Balance December 31, 2019	67,178,054	$	672	$	241,204	$	(4,764)	$	(158,249)	$	78,863

Fractional shares issued from reverse stock split	3	—		—		—		—		—
Issuance of common stock from exercise of stock options	53,846	—		3		—		—		3
Stock-based compensation	—	—		1,188		—		—		1,188
Foreign currency translation adjustment	—	—		—		(2,350)		—		(2,350)
Net loss	—	—		—		—		(39,156)		(39,156)
Balance at September 30, 2020	67,231,903	$	672	$	242,395	$	(7,114)	$	(197,405)	$	38,548

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

Summit Therapeutics Inc.

Condensed Consolidated Statements of Cash Flows

(in thousands)

(Unaudited)


	Nine Months Ended September 30,
	2021		2020
Cash flows used in operating activities:
Net loss	$	(61,503)	$	(39,156)
Adjustments to reconcile net loss to net cash used in operating activities:
Gain on recognition of contingent consideration payable	—		(101)
Non-cash interest expense (income)	480		(296)
Unrealized foreign exchange gain	(646)		(40)
Loss on disposal of asset	2		—
Impairment of intangible assets	—		859
Amortization of operating right-of-use assets	765		252
Depreciation	251		267
Amortization of intangible assets	768		827
Stock-based compensation	7,184		1,188
Change in operating assets and liabilities:
Accounts receivable	(2,070)		(3,480)
Prepaid expenses	1,065		1,431
Other current assets	(82)		(294)
Research and development tax credit receivable	(11,607)		(3,497)
Deferred revenue	(1,336)		5,286
Accounts payable	(347)		(1,849)
Accrued liabilities	4,411		(1,196)
Operating lease liabilities	(743)		(341)
Net cash used in operating activities	(63,408)		(40,140)

Cash flows used in investing activities:
Purchases of property and equipment	(186)		(371)
Net cash used in investing activities	(186)		(371)

Cash flows provided by financing activities:
Proceeds from issuance of common stock from rights offering	75,000		—
Transaction costs on issuance of common stock from rights offering	(159)		—
Proceeds from related party promissory notes	110,000		—
Payments of debt issuance costs	(54)		—
Repayment of related party promissory notes	(110,000)		—
Proceeds from exercise of stock options	1,868		3
Net cash provided by financing activities	76,655		3
Effect of exchange rate changes on cash	770		(2,064)
Increase (decrease) in cash	13,831		(42,572)
Cash at beginning of the period	66,417		63,842
Cash at end of the period	$	80,248	$	21,270


	Nine Months Ended September 30,
	2021		2020
Supplemental Disclosure of Cash Flow Information:
Cash paid for interest on related party promissory note	$	3	$	—
Cash paid for income taxes	6		9
Transaction costs included in accrued expenses	41		—
Lease assets obtained in exchange for operating lease liabilities	2,124		—

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

Summit Therapeutics Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

1. Nature of the Business and Operations and Recent Events

Nature of Business and Operations

The terms "Summit" and the "Company" refer to Summit Therapeutics Inc. and its subsidiaries. Summit is a biopharmaceutical company focused on the discovery, development and commercialization of novel antibiotics for serious infectious diseases. Summit is conducting a Phase III clinical program focused on the infectious disease C. difficile infection (or "CDI"). It is also seeking to expand the product candidate portfolio through the development of new mechanism, precision antibiotics using the proprietary Discuva Platform.

On September 18, 2020, Summit, a Delaware corporation, became the successor issuer to Summit Therapeutics plc, a public limited company incorporated under the laws of England and Wales with the Registrar of Companies of England and Wales, United Kingdom ("U.K."), for certain purposes under both the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended, or the Exchange Act. Such succession occurred pursuant to a statutory scheme of arrangement under U.K. law pursuant to which all Summit Therapeutics plc outstanding ordinary shares were exchanged on a five-for-one basis for newly issued shares of Summit common stock and Summit became the holding company of Summit Therapeutics plc (the predecessor registrant and former holding company) and its subsidiaries (which is referred to as the "Redomiciliation Transaction"). Concurrently, Summit Therapeutics plc was converted into a private limited company under the laws of England and Wales and renamed Summit Therapeutics Limited. In addition, the warrants and stock options to purchase shares of Summit Therapeutics plc were canceled and replacement warrants and stock options to purchase common stock in Summit Therapeutics Inc. were issued. The scheme of arrangement was accounted for as an exchange of equity interests among entities under common control. All assets and liabilities of Summit Therapeutics plc were assumed by Summit, resulting in the retention of the historical basis of accounting as if they had always been combined for accounting purposes and the historical consolidated financial statements of Summit Therapeutics plc became the historical consolidated financial statements of Summit Therapeutics Inc. All share and per share data for periods prior to the Redomiciliation Transaction in the financial statements were retroactively reflected to be presented as shares of our common stock, par value $0.01 per share.

Recent Events

On May 12, 2021, the Company closed its rights offering, which was fully subscribed. The Company received aggregate gross proceeds from the rights offering of $75.0 million from the sale of 14,312,976 shares of the Company’s common stock, par value $0.01, at a price per share of $5.24. Issuance costs associated with the rights offering were immaterial. In connection with the closing of the rights offering, the Second Note (see Note 11) matured and became due and the Company repaid all principal and accrued interest thereunder using a portion of the proceeds from the rights offering.

On August 11, 2021, based on a thorough review of the design and enrollment status of its two ongoing blinded Phase III Ri-CoDIFy trials, the Company announced that it combined its two blinded pivotal Phase III clinical trials evaluating ridinilazole versus vancomycin into a single study and presented this decision to the United States ("U.S.") Food and Drug Administration (the "FDA") as such. During September 2021, the Company received feedback from the FDA that the FDA did not agree with the change to the primary endpoint that the Company proposed and has subsequently implemented in its ongoing Phase III Ri-CoDIFy studies when combining the trials. The Company will provide the combined results to all stakeholders, as the top line results become available. These top line results will best inform all parties as to the next appropriate course of action regarding ridinilazole. The Company anticipates communicating these results during the first quarter of 2022.

2. Basis of Presentation, Use of Estimates, Re-Classification of Certain Prior Period Balances and Correction of Errors in a Prior Period

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States ("U.S. GAAP") and pursuant to the rules and regulations of the U.S. Securities and Exchange Commission. Accordingly, certain information and disclosures required by U.S. GAAP for complete consolidated financial statements are not included herein. All intercompany accounts and transactions have been eliminated in consolidation. The interim financial data as of September 30, 2021, and for the three and nine months ended September 30,

2021 are unaudited; however, in the opinion of management, the interim data includes all adjustments, consisting of normal recurring adjustments, necessary for a fair statement of the results for the interim periods. The condensed consolidated balance sheet presented at December 31, 2020 has been derived from the consolidated audited financial statement as of that date. The results of the period are not necessarily indicative of full year results or any other interim period. These unaudited interim condensed consolidated financial statements should be read in conjunction with the audited financial statements and notes thereto of the Company which are included in the Summit Annual Report on Form 10-K for the year ended December 31, 2020 filed with the U.S. Securities and Exchange Commission on March 31, 2021. The financial results of the Company's activities are reported in U.S. Dollars.

The progression of the COVID-19 pandemic continues to evolve and its enduring impact on the Company's business remains uncertain. Management believes the estimates and assumptions underlying its unaudited interim financial statements are reasonable and supportable based on the information available as of September 30, 2021, however, the extent to which the COVID-19 pandemic impacts the Company's financial results for the remainder of 2021 and beyond will depend on future developments that are highly uncertain and cannot be predicted at this time.

Use of Estimates

The preparation of these unaudited condensed consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent liabilities at the date of the unaudited condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. On an on-going basis, management evaluates its estimates and judgments, including those related to revenue recognition, accrued research and development expenses, stock-based compensation, intangible assets, goodwill, other long-lived assets and income taxes. Management bases its estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

Re-Classification of Prior Period Balances

Certain prior period amounts within the condensed consolidated statements of comprehensive loss for the three and nine months ended September 30, 2020 have been re-classified to conform to the current period presentation. Specifically, a foreign currency loss of $1.3 million and a foreign currency gain of $2.0 million for the three and nine months ended September 30, 2020, respectively, previously included as part of total operating expenses within general and administrative expenses, has been reclassified to be presented as part of other (expense) income, net and net expenses of $0.7 million and $0.8 million for the three and nine months ended September 30, 2020, respectively, previously reported as research and development expenses, are now presented as general and administrative expenses in conformity with the current period presentation.

Correction of Errors in Prior Periods

During the quarter ended December 31, 2020, the Company identified a deferred tax asset relating to the acquired, carried forward, tax losses arising from the acquisition of Discuva Limited in December 2017 that was not included as part of the business combination accounting. Furthermore, the Company identified deferred tax assets relating to available carried forward group tax losses arising as a result of the acquisition of Discuva Limited in December 2017 that were not included in the Company's subsequent balances sheets. As a result, in the Company's previously issued condensed consolidated financial statements for the period ended September 30, 2020, the Company incorrectly recognized $0.4 million of goodwill and omitted the inclusion of deferred tax assets of $2.1 million in the balance sheet as of September 30, 2020. Since the Company's deferred tax liabilities and deferred tax assets both arise in the U.K. tax jurisdiction, accordingly these are offset on the condensed consolidated balance sheet. The Company records a full valuation allowance against the deferred tax assets in excess of the deferred tax liabilities, as the deferred tax liability represents future reversals of existing taxable temporary differences. The impact of these errors on net loss was a deferred tax benefit $0.1 million for the both the three and nine months ended September 30, 2020. The misstatement had no net impact on the Company’s condensed consolidated statements of cash flows. Management concluded that the correction was not material to previously issued consolidated financial statements. Since these errors were not material to any previously issued annual or interim financial statements, no amendments to previously filed financial statements were required. Consequently, the Company has corrected for these errors by revising the September 30, 2020 balances herein and in the annual financial statements on the Company's Form 10-K, filed on March 31, 2021.

3. Recently Issued or Adopted Accounting Pronouncements

In October 2021, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2021-08, "Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers." This ASU improves the accounting for acquired revenue contracts with customers in a business combination by addressing diversity in practice and inconsistency relating to: 1) recognition of an acquired contract liability and 2) payment terms and their effect on subsequent revenue recognized by the acquirer. The amendments in this ASU require acquiring entities to apply Topic 606 to recognize and measure contract assets and contract liabilities in a business combination, whereas current U.S. GAAP requires that the acquirer measure such assets and liabilities at fair value on the acquisition date. This ASU is effective for annual periods, and interim periods within those fiscal years, beginning after December 15, 2022. The Company will apply this ASU on a prospective basis for business combinations once this ASU is effective and at that time will be able to determine the potential impact on its financial position, results of operations or cash flows.

In December 2019, the FASB issued ASU No. 2019-12, "Income Taxes (Topic 740)." This ASU simplifies the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. The amendments also improve consistent application and simplify U.S. GAAP for other areas of Topic 740 by clarifying and amending existing guidance. This ASU is effective for annual periods, and interim periods within those fiscal years, beginning after December 15, 2020. The Company adopted this ASU during the first quarter of 2021 and the adoption of this ASU did not have a material impact on its financial position, results of operations or cash flows.

In January 2017, the FASB issued ASU 2017-04, "Intangibles - Goodwill and Other (Topic 350)." This ASU simplifies how an entity is required to test goodwill for impairment by eliminating the requirement to determine the fair value of individual assets and liabilities in order to calculate a reporting unit’s “implied” goodwill. This ASU is effective for annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2020. The Company performs its goodwill impairment test during the fourth quarter of each fiscal year. The Company does not expect the adoption of this ASU to have a material impact on its financial position, results of operations or cash flows.

4. Going Concern

During the three and nine months ended September 30, 2021, the Company incurred a net loss of $19.6 million and $61.5 million, respectively, and cash flows used in operating activities for the nine month period ended September 30, 2021 was $63.4 million. As of September 30, 2021, the Company had an accumulated deficit of $272.4 million, cash of $80.2 million, research and development tax credits of $21.4 million and accounts receivable of $2.3 million. The Company expects to continue to generate operating losses for the foreseeable future. Until the Company can generate substantial revenue and achieve profitability, the Company will need to raise additional capital to fund its ongoing operations and capital needs.

During the third quarter of 2021, the Company combined its Phase III clinical trials evaluating ridinilazole versus vancomycin into a single study. The combination of these studies is expected to lead to the acceleration of the readout of our clinical trial results, which the Company expects to receive in the first quarter of 2022. Assuming positive top-line data, the Company may accelerate its spending to prepare for regulatory filings and commercial readiness. Based on these circumstances, prior to considering management’s plans described below, the Company has determined that with its current financial resources, which includes its existing cash on hand, funding agreements, and research and development tax credits receivable, the Company would be able to operate into the third quarter of 2022. In order to continue to fund the operations of the Company beyond this time period and assuming positive top-line data in the first quarter of 2022, management has developed plans, which primarily consist of raising additional capital through some combination of equity or debt financings, and/or potentially new collaborations. There is no assurance, however, that additional financing will be available when needed or that management of the Company will be able to obtain financing on terms acceptable to the Company. If the Company is unable to obtain funding, the Company will implement an alternative operating plan that scales back its operations, reduces cash expenditures, and focuses its available capital on a reduced number of activities and programs. Based on the Company's current funding arrangements and financial resources as of September 30, 2021 of $103.9 million, consisting of cash of $80.2 million, research and development tax credit receivables of $21.4 million, and accounts receivable of $2.3 million, and after considering management’s alternative operating plans, the Company would have the ability to fund its operating costs and working capital needs into the first quarter of 2023.

The accompanying condensed consolidated financial statements are prepared assuming the Company will continue as a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course of the business. The condensed consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classifications of liabilities that might result from the outcome of this uncertainty.

5. Segment Reporting

The Company's chief operating decision makers (the "CODM function"), which are the Company’s Chief Executive Officer and Chief Operating Officer, utilize financial information to make decision about allocating resources and assessing performance for the entire Company, which is used in the decision-making process to assess performance. The CODM function views the Company’s operations and manage its business as a single reportable operating segment. The Company's single operating segment covers the Company’s research and development activities, primarily comprising the CDI program and antibiotic pipeline research activities. As the Company operates in

SEC Form 10-Q filed by Summit Therapeutics plc