Mast Therapeutics, Inc. — Form 10-Q summary
Reporting period: Quarter and nine months ended September 30, 2015; filed November 12, 2015. The filing identifies the registrant as Mast Therapeutics, Inc., not Savara Inc.
Business context
Mast was a clinical-stage biopharmaceutical company with no product sales or significant revenue. Its lead candidate, vepoloxamer (MST-188), was being developed primarily for sickle cell disease, with additional programs in heart failure and stroke. AIR001 was being developed for heart failure with preserved ejection fraction (HFpEF).
Financial performance and position
| Metric | Q3 2015 | Q3 2014 | Nine months 2015 | Nine months 2014 |
|---|---|---|---|---|
| Revenue | $0 | $0 | $0 | $0 |
| Research and development expense | $7.3m | $5.4m | $21.1m | $14.5m |
| Selling, general and administrative expense | $2.5m | $2.5m | $8.4m | $7.1m |
| Net loss | $9.9m | $7.9m | $29.7m | $21.4m |
| Net loss per share | $0.06 | $0.06 | $0.18 | $0.19 |
| Cash used in operating activities | Not stated for quarter | Not stated for quarter | $24.1m | $18.6m |
- R&D expense rose 35.7% in Q3 and 45.5% for the nine-month period, chiefly due to vepoloxamer manufacturing and clinical-study costs, including the EPIC study.
- Nine-month SG&A increased 19.1%, including severance and accelerated stock compensation following the former president and COO’s departure.
- At September 30, cash and cash equivalents were $32.2m and investment securities were $17.7m, or $49.9m combined. Total current assets were $51.4m; current liabilities were $13.5m. Total assets were $63.4m and total liabilities were $29.9m.
- Cash and cash equivalents fell $3.6m from year-end 2014. Nine-month investing activities provided $3.7m, while financing activities provided $16.8m, mainly from $15.0m of loan borrowings and $2.0m of common-stock sales.
- The Hercules facility had $15.0m principal outstanding. Balance-sheet carrying value was $1.5m current and $13.0m long term, net of debt costs and warrant discount. Interest expense was $0.1m for the nine months.
- Operating margins are not meaningful because the company had no revenue and reported operating losses.
Material changes, outlook and risks
- Net loss for the first nine months increased $8.3m year over year; lower 2014 net loss per share reflected a larger increase in weighted-average shares, not improved total earnings.
- Mast reported that more than 80% of the planned 388 EPIC participants had been enrolled, but slower-than-expected October enrollment led it to expect top-line results in Q2 2016. The company initiated a Phase 2 vepoloxamer chronic-heart-failure study in October 2015.
- The company discontinued its vepoloxamer acute limb ischemia study and redirected development toward stroke. AIR001 remained in two institution-sponsored Phase 2a HFpEF studies; a Phase 2b study was conditional on positive results.
- Management expected September 30 cash, equivalents and investments to fund operations for at least 12 months only if the company did not have to make a $10m Hercules prepayment. It forecast approximately $9m–$10m of operating expenses for the final three months of 2015, excluding share-based compensation, and said further capital would be needed to complete development and commercialization.
- The $10m prepayment could be due April 30, 2016 if specified clinical milestones were not achieved by December 31, 2015 and, by April 30, Mast had neither obtained at least $15m in qualifying net partnership or equity proceeds nor demonstrated positive EPIC results. The loan is secured by substantially all assets other than intellectual property, but includes proceeds from its sale, licensing or disposition; covenants constrain financial and operating flexibility.
- Other risks include clinical enrollment, safety and efficacy, regulatory approval, manufacturing and third-party execution, and the ability to raise capital. Potential share issuance through an ATM program and outstanding warrants could dilute shareholders or pressure the share price.
- Management reported effective disclosure controls as of September 30, 2015 and no material pending litigation.
Important facts for investors to verify
- Whether the EPIC enrollment pace and anticipated Q2 2016 data timing were achieved, and the trial’s eventual results.
- Whether the stated December 2015 clinical milestones and April 2016 financing or EPIC conditions were satisfied, avoiding the $10m debt prepayment.
- Actual cash burn, runway and subsequent financing needs compared with management’s conditional 12-month liquidity outlook.
- Progress and results in the vepoloxamer heart-failure and stroke programs and the AIR001 HFpEF studies.
- Hercules facility terms, covenant compliance and any future impact from warrants, ATM sales or other potential share issuance.