Armata Pharmaceuticals, Inc. — Q2 2022 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2022. Armata is a clinical-stage biotechnology company developing bacteriophage therapies for antibiotic-resistant and difficult-to-treat bacterial infections. It reported no product sales; reported revenue consisted of grant revenue.
Financial performance and position
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Grant revenue | $1.883 million | $1.168 million | $3.119 million | $2.234 million |
| Research and development expense | $9.020 million | $5.225 million | $17.048 million | $9.575 million |
| General and administrative expense | $2.083 million | $2.139 million | $4.066 million | $4.290 million |
| Net loss | $9.215 million | $6.194 million | $17.989 million | $11.689 million |
| Net loss per share, basic and diluted | $0.26 | $0.25 | $0.55 | $0.52 |
- Cash flow: Six-month operating cash use was $11.663 million, versus $10.013 million in 2021. Investing cash use was $1.372 million, primarily for equipment. Financing provided $44.485 million, principally from the February 2022 Innoviva placement. Cash, cash equivalents and restricted cash totaled $42.938 million at June 30.
- Liquidity: Unrestricted cash and cash equivalents were $36.978 million. Management said existing resources were expected to fund planned operations into Q1 2023, but additional capital will be needed. The company disclosed substantial doubt about its ability to continue as a going concern.
- Balance sheet: Total assets were $100.984 million, total liabilities $47.693 million, and stockholders’ equity $53.291 million. Current assets were $41.306 million and current liabilities $7.383 million. Operating lease liabilities totaled approximately $38.939 million, including current and long-term portions; the filing reports no conventional borrowings in the presented balance sheet.
- Margins: Gross margin is not presented; the company has no product sales and reported grant revenue against operating expenses.
Changes versus comparable periods
- Q2 grant revenue increased by $0.715 million; six-month grant revenue rose by $0.885 million, reflecting MTEC reimbursement of eligible AP-SA02 program costs.
- R&D expense increased $3.795 million in Q2 and $7.473 million for the six months. Management attributed the increases mainly to clinical-trial activity, laboratory supplies, personnel and lease costs, as well as the absence of prior-year Cystic Fibrosis Foundation (CFF) and Australian tax-credit expense offsets.
- Q2 net loss increased $3.021 million; six-month net loss increased $6.300 million. The company continued to report operating losses and negative operating cash flow.
- Cash and cash equivalents increased from $10.288 million at December 31, 2021, largely following the $44.4 million net proceeds from Innoviva’s February/March 2022 financing. The placement issued 9 million shares at $5.00 per share and warrants for up to 4.5 million additional shares.
Outlook, developments and risks
- No formal financial guidance was provided. Management expects significant operating losses to continue and does not expect product revenue until a candidate is developed and approved for marketing.
- Clinical programs include AP-PA02 for Pseudomonas aeruginosa infections in cystic fibrosis; AP-SA02 for Staphylococcus aureus bacteremia; and AP-PA02 in non-cystic fibrosis bronchiectasis. FDA had cleared the NCFB IND, and the company planned to initiate a Phase 2 trial in 2022. Trial progress and enrollment remain subject to clinical, regulatory, manufacturing and pandemic-related uncertainty.
- The $15 million MTEC award partially funds AP-SA02 development; grant revenue is recognized as related costs are incurred. The CFF award can provide up to $5 million for AP-PA02, but no CFF expense credits were recognized in the first half of 2022.
- Funding beyond the stated runway depends on additional financing, collaborations, grants or other capital. Financing may be unavailable or unfavorable; equity issuance could dilute shareholders, while collaborations could require relinquishing product rights.
- Innoviva held approximately 69.4% of outstanding shares after the 2022 placement and could hold approximately 80.1% if it exercised its warrants, giving it substantial voting influence. At June 30, 20.549 million warrants were outstanding.
- Other material risks include clinical-trial failure or delay, novel phage technology and regulatory uncertainty, manufacturing and supply-chain constraints, COVID-19 impacts, and construction and cost risks related to the new Los Angeles facility. The company also has a 16-year lease for that facility, with base rent starting at approximately $0.25 million monthly in 2024.
- The CFO retired effective June 30, 2022; Erin Butler became Principal Financial and Accounting Officer effective July 1. Management concluded disclosure controls were effective at a reasonable assurance level and reported no material quarterly change in internal control over financial reporting.
- The company reported no legal proceedings expected by management to have a material adverse effect and no off-balance-sheet arrangements.
Key facts for investors to verify
- Whether cash use, trial spending and timing keep the company within its stated Q1 2023 runway, and what financing is available afterward.
- Clinical-trial enrollment, milestones and results for AP-PA02 and AP-SA02, including the planned 2022 NCFB Phase 2 start.
- Remaining MTEC and CFF award funding, applicable milestones, and any restrictions or future payment obligations tied to those awards.
- Potential dilution from outstanding warrants, options and future capital raises, and the implications of Innoviva’s controlling ownership.
- Construction, tenant-improvement reimbursement, lease obligations and operating costs associated with the Los Angeles facility.