Armata Pharmaceuticals, Inc. — Q2 2023 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2023. Armata is a clinical-stage biotechnology company developing bacteriophage therapies for difficult-to-treat and antibiotic-resistant bacterial infections. It reported grant revenue, not product sales.
Financial performance and position
| Metric | Q2 2023 | Six months 2023 | Comparable 2022 |
|---|---|---|---|
| Grant revenue | $0.98 million | $1.78 million | $1.88 million Q2; $3.12 million first half |
| Research and development expense | $8.26 million | $17.86 million | $9.02 million Q2; $17.05 million first half |
| General and administrative expense | $2.35 million | $4.89 million | $2.08 million Q2; $4.07 million first half |
| Operating loss | $9.63 million | $20.98 million | $9.22 million Q2; $18.00 million first half |
| Net loss | $3.55 million | $18.04 million | $9.22 million Q2; $17.99 million first half |
| Basic loss per share | $0.10 | $0.50 | $0.26 Q2; $0.55 first half |
- Q2 net loss included $6.04 million of noncash income from the fair-value change in convertible debt; first-half noncash income was $2.87 million. The lower Q2 net loss therefore does not reflect improved operating results.
- First-half operating cash use was $29.63 million, versus $11.66 million in 2022. Investing cash use was $2.23 million, primarily for laboratory and manufacturing equipment. Financing provided $29.23 million from the convertible loan.
- At June 30, cash and cash equivalents were $12.46 million, with another $5.72 million restricted. Current assets were $26.83 million and current liabilities $51.56 million. Total assets were $101.21 million; total liabilities were $82.07 million; shareholders’ equity was $19.14 million.
- The June 30 balance sheet included $26.35 million of convertible debt, classified as a current liability, and $41.96 million of operating lease liabilities in total. No conventional profitability margin is meaningful given the company’s development-stage, grant-funded operations.
Material changes versus prior period
- Q2 grant revenue fell 48% year over year; first-half grant revenue fell 43%, reflecting lower recognized MTEC grant funding.
- First-half R&D expense increased 4.8% and G&A expense increased 20.2%; operating loss widened 16.6%. Management cited higher personnel, professional-services and lease costs, partly offset by lower clinical-trial activity and laboratory supplies.
- First-half operating cash use increased by $17.97 million year over year, primarily due to cash-flow changes in operating assets and liabilities, including lease payments and clinical prepayments.
- Cash and cash equivalents declined from $14.85 million at year-end 2022 to $12.46 million at June 30, 2023. A $30 million convertible facility with Innoviva generated $29.23 million net proceeds; it is carried at fair value, which can materially affect reported earnings.
Outlook, developments and risks
- Liquidity and going concern: The company has accumulated losses and negative operating cash flows; management states these conditions raise substantial doubt about its ability to continue as a going concern. Management expected June cash resources plus the July financing to fund planned operations into Q1 2024, but says additional capital will be needed and is not assured. Failure to obtain financing could force cuts or delays to programs or operations.
- Subsequent financing: On July 10, 2023, Armata entered a secured $25 million term loan with Innoviva Strategic Opportunities at 14% annual interest, due January 10, 2025, secured by substantially all company assets and subject to covenants. The same date, the maturity of the $30 million 8% convertible loan was extended to January 10, 2025. The convertible debt may convert in specified financing circumstances or at the lender’s option, creating potential dilution.
- Clinical programs: Armata reported positive topline results from the completed inhaled AP-PA02 SWARM study in cystic fibrosis: treatment was described as well tolerated, with exploratory bacterial-load trends and greater apparent microbiological effects among subjects with higher exposure. These findings are not evidence of regulatory approval or established efficacy. The company anticipated starting the Phase 2a portion of its AP-SA02 bacteremia study in Q3 2023; its AP-PA02 bronchiectasis Phase 2 study had dosed its first patient, and it was preparing an AP-SA02 periprosthetic joint infection trial.
- Grant and construction commitments: The $16.3 million MTEC award supports AP-SA02 bacteremia development and runs into 2024; commercialization may trigger payment obligations. Estimated construction costs for the new Los Angeles headquarters were about $26.5 million, including up to $7.3 million reimbursable by the landlord; $15.7 million had been incurred by June 30. Cost estimates may change.
- Other risks and disclosures: The company cited financing, clinical and regulatory execution, manufacturing and supplier capacity, and construction-cost risks. It reported no material change to previously disclosed risk factors, no material legal proceeding, no off-balance-sheet arrangements, and effective disclosure controls as of June 30, 2023.
Important facts for investors to verify
- Whether the July $25 million secured loan was funded as expected, and how its high interest, collateral package and covenants affect liquidity and operating flexibility.
- Cash runway after the July financing, ongoing monthly cash use, and the timing and terms of any additional financing; the filing still identifies substantial doubt about going concern.
- Convertible-loan fair-value accounting and potential conversion or dilution, including the lender’s conversion rights and the effect of any qualified financing.
- Progress, enrollment, safety and efficacy data for AP-SA02 and AP-PA02 trials, including whether the anticipated Q3 2023 AP-SA02 Phase 2a start occurred.
- Actual headquarters construction spending and landlord reimbursements, and the remaining lease-related cash obligations.
- The balance sheet reports an accumulated deficit of $257.81 million, while MD&A states $257.5 million; verify the precise figure against the filed financial statements.