Summary of Significant Accounting Policies (Policies)

12 Months Ended

Dec. 31, 2021

Summary of Significant Accounting Policies

The consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America, or US GAAP, and US Securities and Exchange Commission, or SEC, regulations for annual reporting. The consolidated financial statements include the accounts of Nabriva Therapeutics plc and its wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.

Functional Currency Transactions and Balances

Functional Currency Transactions and Balances

In preparing the consolidated financial statements, transactions in currencies other than the U.S. dollar are recognized at the exchange rates prevailing at the dates of the transactions. Foreign currency exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognized in the consolidated statements of operations.

Use of Estimates

Use of Estimates

The preparation of consolidated financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Cash and Cash Equivalents

The Company considers highly liquid investments with original maturities of three months or less to be cash equivalents.

Short-term Investments

The Company has designated its investments in securities as available-for-sale securities and measures these securities at their respective fair values. Investments that mature in one year or less are classified as short-term available-for-sale securities. Investments that are not considered available for use in current operations are classified as long-term available-for-sale securities. Changes in the fair value of available-for-sale investments are recognized in other comprehensive income (loss).

Inventory

Inventory

Inventory is stated at the lower of cost or net realizable value. Inventory is valued on a first-in, first-out basis and consists primarily of material costs, third-party manufacturing costs, and related transportation costs along the Company's supply chain. The Company capitalizes inventory upon regulatory approval when, based on management’s judgment, future commercialization is considered probable and the future economic benefit is expected to be realized; otherwise, such costs are recorded as research and development expense. Costs of drug product to be consumed in any current or future clinical trials will continue to be recognized as research and development expense and costs of sample inventory is recorded as selling, general and administrative expense. The Company reviews inventories for realization on a quarterly basis and would record provisions for estimated excess, slow-moving and obsolete inventory, as well as inventory with a carrying value in excess of net realizable value when necessary. As of December 31, 2021, the Company had a $1.0 million non-cash reserve for excess and obsolete inventory due to timing of expiring inventory.

The components of our inventory at December 31, 2021 and 2020 are as follows:


		As of		As of
		December 31,		December 31,
(in thousands)		2021		2020
XENLETA raw materials	$	1,528	$	952
XENLETA work in process		9,142		4,608
XENLETA finished goods		18		263
Total XENLETA		10,688		5,823
SIVEXTRO finished goods		3,821		—
Total inventory	$	14,509	$	5,823

Property, Plant and Equipment

Property, plant and equipment are stated at cost less accumulated depreciation. Depreciation is calculated using the straight-line method over the estimated useful lives of the assets. The estimated useful lives of property, plant and equipment are as follows: 3-5 years for IT equipment, 5-10 years for laboratory equipment and 3-10 years for other plant and office equipment. The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each reporting date. When assets are sold or otherwise disposed of, the difference between the net proceeds, if any, and the net carrying amount of the asset is recognized as a gain or a loss in other operating income or expenses.

Intangible Assets and Other Long-lived Assets

Intangible assets, such as acquired computer software licenses, are capitalized on the basis of the costs incurred to acquire the software and bring it into use. These costs are amortized on a straight-line basis over their estimated useful lives (3-10 years).

Long-lived assets are assessed for potential impairment when there is evidence that events or changes in circumstances indicate that the carrying amount of an asset may not be recovered. An impairment loss would be recognized when undiscounted cash flows expected to be generated by an asset, is less than its carrying amount. The impairment loss would be measured as the amount by which the asset’s carrying value exceeds its fair value and recognized in these financial statements.

Segment Information

Operating segments are defined as components of an enterprise about which separate discrete information is available for evaluation by the chief operating decision maker, or decision-making group, in deciding how to allocate resources and in assessing performance. The Company views its operations and manages its business as one operating segment, which is the commercialization and development of novel anti-infective agents to treat serious and life-threatening infections.

Revenue Recognition

Revenue Recognition—The Company recognizes revenue from sales of its commercial products in accordance with ASC 606, Revenue from Contracts with Customers, or ASC 606.

Net Product Revenue

In September 2019, the Company launched XENLETA and in April 2021 the Company began exclusive distribution of SIVEXTRO in the United States and certain of its territories. The Company sells its products principally to a limited number of specialty distributors and wholesalers. The Company recognizes revenue once it has transferred physical possession of the goods and the customer obtains legal title to the product. Payment terms between Nabriva and its customers are generally approximately 60 days from the invoice date. In addition to distribution agreements with customers, the Company enters into arrangements with health care providers and payers that provide for government mandated and/or privately negotiated rebates, chargebacks and discounts with respect to the purchase of its product.

The transaction price that the Company recognizes as revenue reflects the amount it expects to be entitled to in connection with the sale and transfer of control of product to its customers. At the time that the Company’s customers take control of the product, which is when the Company’s performance obligation under the sales contracts is complete, the Company records product revenues net of applicable reserves for various types of variable consideration. The types of variable consideration are as follows:

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Fees-for-service

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Product returns

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Chargebacks and rebates

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Government rebates

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Commercial payer and other rebates

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Group Purchasing Organizations, or GPO, administration fees

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Voluntary patient assistance programs

In determining the amounts of certain allowances and accruals, the Company must make significant judgments and estimates. For example, in determining these amounts, the Company estimates prescription demand from retail pharmacies, specialty pharmacies, hospital demand, buying patterns by hospitals, hospital systems and/or group purchasing organizations and the levels of inventory held by distributors and customers. The Company also analyzes third party end usage product consumption patterns to gauge demand for its products. Making these determinations involves analyzing third party industry data to determine whether trends in historical channel distribution patterns will predict future product sales. The Company receives data periodically from its customers on inventory levels and historical channel sales mix, and the Company considers this data when determining the amount of the allowances and accruals for variable consideration.

In assessing the amount of net revenue to record, the Company considers both the likelihood and the magnitude of the revenue reversal. Actual amounts of consideration ultimately received may differ from the Company’s estimates. If actual results in the future vary from the Company’s estimates, the Company adjusts these estimates, which would affect net product revenue and earnings in the period such variances become known. The specific considerations the Company uses in estimating these amounts related to variable consideration associated with the Company’s products are as follows:

Fees-for-service – The Company offers discounts and pays certain distributor service fees which are recorded as a reduction of revenue in the period the related product revenue is recognized. The Company does not consider the fees separate from the distributors’ purchase of the product. The Company records its fee-for-service accruals based on distributors’ purchases and the applicable discount rate.

Product returns – Generally, the Company’s customers have the right to return products during the 18-month period beginning six months prior to the labeled expiration date and ending twelve months after the labeled expiration date. Since the Company has a limited history of SIVEXTRO and XENLETA returns, the Company estimated returns based on industry data for comparable products in the market. As the Company distributes its product and establishes historical sales over a longer period of time (i.e., two to three years), the Company will be able to place more reliance on historical purchasing, demand and return patterns of its customers when evaluating its reserves for product returns. The Company’s XENLETA product has a forty-eight month shelf life and SIVEXTRO has a thirty-six month shelf life.

The Company’s customers also have the right to return excess inventory on new products that do not yield forecasted sales. To the extent the Company’s customers determine that the quantities they purchased are in excess of

their customers demand, product returns could increase in excess of what the Company has currently reserved which would result in a reduction to net revenues in future periods.

At the end of each reporting period for any of its products, the Company may decide to constrain revenue for product returns based on information from various sources, including channel inventory levels and dating and sell-through data, the expiration dates of product currently being shipped, price changes of competitive products and introductions of generic products.

Chargebacks and rebates – Chargebacks are discounts that occur when certain contracted customers, which currently consist primarily of group purchasing organizations, public health service institutions, and Federal government entities purchasing via the Federal Supply Schedule, purchase directly from our wholesalers or specialty distributors. Contracted customers generally purchase the product at a discounted price. The Company provides a credit to its wholesaler or specialty distributor customers (i.e., chargeback), representing the difference between the customer’s acquisition list price and the discounted price. The calculation of the accrual for chargebacks and rebates is based on estimates of claims and their associated cost that the Company expects to receive associated with product sales that have been recognized as revenue but remain in the distribution channel as inventory at the end of each reporting period.

Government rebates –The Company is subject to discount obligations primarily under state Medicaid and Medicare programs. The Company estimates its Medicaid and Medicare rebates based upon a range of possible outcomes that are probability-weighted for the estimated payer mix. These reserves are recorded in the same period the related product revenue is recognized, resulting in a reduction of product revenue and the establishment of a current liability that is included in accrued expenses on the consolidated balance sheet. For Medicare, the Company also estimates the number of patients in the prescription drug coverage gap for whom the Company will owe an additional liability under the Medicare Part D program. The calculation of the accrual for government rebates is based on estimates of claims and their associated cost that the Company expects to receive associated with product sales that have been recognized as revenue but remain in the distribution channel as inventory at the end of each reporting period.

Commercial payer and other rebates – The Company contracts with certain private payer organizations, primarily insurance companies and pharmacy benefit managers, for the payment of rebates with respect to utilization of SIVEXTRO and XENLETA and contracted formulary status. The Company estimates these rebates and records reserves for such estimates in the same period the related revenue is recognized. Currently, the reserve for customer payer rebates considers future utilization based on third party studies of payer prescription data; the utilization is applied to product that remains in the distribution and retail pharmacy channel inventories at the end of each reporting period. The calculation of the accrual for commercial payer and other rebates is based on estimates of claims and their associated cost that the Company expects to receive associated with product sales that have been recognized as revenue but remain in the distribution channel as inventory at the end of each reporting period.

GPO administration fees – The Company contracts with GPOs and pays administration fees related to contacting and membership management services provided. In assessing if the consideration paid to the GPO should be recorded as a reduction in the transaction price, the Company determines whether the payment is for a distinct good or service or a combination of both. Since GPO fees are not specifically identifiable, the Company does not consider the fees separate from the purchase of the product. Additionally, the GPO services generally cannot be provided by a third party. Because of these factors, the consideration paid is considered a reduction of revenue.

Patient assistance – The Company offers certain voluntary patient assistance programs for prescriptions, such as co-pay assistance programs, which are intended to provide financial assistance to qualified commercially insured patients with prescription drug co-payments required by payers. The calculation of the accrual for co-pay assistance is based on an estimate of claims and the cost per claim that the Company expects to receive associated with product sales that have been recognized as revenue but remains in the distribution channel as inventory at the end of each reporting period.

At the end of each reporting period, the Company will adjust its variable consideration estimates for product returns, chargebacks, and rebates when the Company believes actual experience may differ from current estimates.

Cost of Revenues

Cost of revenues for XENLETA primarily represents direct and indirect manufacturing costs, while cost of revenues for SIVEXTRO represent the actual purchase cost for the finished product from Merck. Prior to the FDA approval of XENLETA on August 19, 2019, the inventory costs for XENLETA were expensed as research and development expenses since the approval was outside of our control and therefore not considered probable. As such, the majority of the expenses incurred for our initial inventories of XENLETA has been previously expensed. For the years ended December 31, 2021 and 2020, cost of revenues include a $0.3 million and $0.7 million non-cash reserve adjustment for excess and obsolete inventory due to timing of expiry dating of inventory.

Research Premium and Grant Revenue

Grant revenue comprises (a) the research premium from the Austrian government, (b) grants received from the Austrian Research Promotion Agency (Österreichische Forschungsförderungsgesellschaft, or FFG), and (c) the benefit of government loans at below-market interest rates.

The research premium the Company receives from the Austrian government is calculated at a specified percent of specified research and development cost base. The Company recognizes the research premium as long as it has incurred research and development expenses. All grants are non-refundable as long as the conditions of the grant are met. Nabriva is and has been in full compliance with the conditions of the grants and all related regulations.

Research and Development Expenses

All research and development costs are expensed as incurred. Research and development costs included direct personnel and material costs, related overheads, depreciation of equipment used for research or development purposes; costs for clinical research; costs for the utilization of third parties’ patents for research and development purposes and other taxes related to research facilities.

Share-based Payments

The Company measures the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award in accordance with ASC 718, Compensation—Stock Compensation. The fair value of stock options is estimated using the Black-Scholes option pricing model. All grants under share-based payment programs are accounted for at fair value and that cost is recognized over the period during which an employee is required to provide service in exchange for the award—the requisite service period (vesting period). The Company accounts for forfeitures as incurred. Compensation expense for options granted to non-employees is determined as the fair value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measured.

Leases

The Company follows ASC Topic 842, Leases, which sets out the principles for the recognition, measurement, presentation and disclosure of leases for both lessees and lessors.

The Company determines if an arrangement is a lease at inception. Operating lease right-of-use, or ROU, assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the remaining lease term. ROU assets are included in property, plant and equipment, and operating lease liabilities are included in accrued expenses on the Company’s consolidated balance sheet. The Company has elected not to recognize ROU assets or lease liabilities for short-term leases. Since none of the Company’s lease agreements provide an implicit rate, the Company estimates an incremental borrowing rate over the lease term 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.

Income Taxes

The Company accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this method, the Company determines deferred tax assets and liabilities on the basis of the differences between the financial statement and tax bases of assets and liabilities by using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date.

The Company recognizes deferred tax assets to the extent that it believes that these assets are more likely than not to be realized. In making such a determination, the Company considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, and results of recent operations. If the Company determines that it would be able to realize its deferred tax assets in the future in excess of their net recorded amount, the Company would make an adjustment to the deferred tax asset valuation allowance, which would reduce the provision for income taxes.

In recognizing the benefit of tax positions, the Company has taken or expects to take, the Company determines whether it is more likely than not that the tax positions will be sustained on the basis of the technical merits of the position and for those tax positions that meet the more-likely-than-not recognition threshold, the Company recognizes the largest amount of tax benefit that is more than 50 percent likely to be realized upon ultimate settlement with the related tax authority.

The Company’s policy is to record interest and penalties related to tax matters in income tax expense.

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. The Company has not adopted any new accounting pronouncements for the year ended December 31, 2021, nor are there any recently issued accounting pronouncements that are expected to have a material impact on the Company´s consolidated financial statements in future periods.