Armata Pharmaceuticals, Inc. — Q2 2021 Form 10-Q
Business context and reporting period
Clinical-stage biotechnology company developing bacteriophage therapies for antibiotic-resistant and difficult-to-treat infections. This unaudited report covers the three and six months ended June 30, 2021; comparisons are with the corresponding 2020 periods.
Financial and operating highlights
| Metric | Q2 2021 | Q2 2020 | First half 2021 | First half 2020 |
|---|---|---|---|---|
| Grant revenue | $1.168m | $0.031m | $2.234m | $0.031m |
| Research and development expense | $5.225m | $2.648m | $9.575m | $5.398m |
| General and administrative expense | $2.139m | $1.973m | $4.290m | $4.144m |
| Net loss | $6.194m | $4.710m | $11.689m | $9.788m |
| Net loss per share, basic and diluted | $0.25 | $0.26 | $0.52 | $0.68 |
Grant revenue primarily reflects MTEC funding for AP-SA02 research costs; the company reported no product sales. Operating loss was $6.196m in Q2 and $11.631m for the first half. Profit margins are not meaningful given the development-stage business and grant-based revenue.
At June 30, cash and cash equivalents were $17.536m, plus $1.200m restricted cash. Current assets were $19.709m and current liabilities $5.903m, giving working capital of $13.806m. Total assets were $48.281m, total liabilities $19.662m, and stockholders’ equity $28.619m. Operating lease liabilities totaled $12.349m. The $0.725m PPP loan remained outstanding at quarter-end; the company received full forgiveness in July 2021 and expected to record the extinguishment gain in Q3.
For the first half, operating cash use was $10.013m, investing cash use $0.494m, and financing cash provided $18.394m. Financing included $19.363m net proceeds from the Innoviva private placement; cash, cash equivalents and restricted cash increased $7.887m. The company paid the final $2.0m SGI time-based installment in Q1 2021.
Material changes versus comparable periods
- Q2 grant revenue increased to $1.168m from $31,000, reflecting MTEC-funded expenses.
- R&D expense rose $2.577m in Q2 and $4.177m in the first half, mainly from personnel, clinical-trial and outsourcing costs, and laboratory expenses.
- Net loss increased by $1.484m in Q2 and $1.901m in the first half. Loss per share improved year over year, while weighted-average shares increased substantially, reflecting equity issuance.
- Cash increased from $9.649m at December 31, 2020 to $17.536m at June 30, 2021, principally due to the 2021 Innoviva financing. Common shares outstanding increased from 18.688m to 24.938m.
Outlook, risks and unusual items
- Management estimated existing resources would fund planned operations into Q1 2022, but stated that recurring losses and negative operating cash flows raise substantial doubt about the company’s ability to continue as a going concern. Additional capital is needed; availability and terms are uncertain.
- AP-PA02 is being advanced in a Phase 1b/2a study for Pseudomonas infections in cystic fibrosis patients; AP-SA02 is planned for a Phase 1/2 study for S. aureus bacteremia. COVID-19 has delayed trial activities and caused some supply-material delays; the filing says future effects are not reliably estimable.
- The MTEC agreement provides for up to $15m in cost-reimbursable grant funding through January 2024. MTEC may receive capped fees or royalties upon licensing or commercialization. CFF funding of up to $5m supports AP-PA02 and carries repayment or licensing provisions in specified interruption circumstances, plus commercial royalty and milestone obligations.
- The SGI asset acquisition includes potential development and regulatory milestone payments of up to $39.5m. No material adverse legal proceeding was reported.
- Innoviva held approximately 59.6% of outstanding shares after the 2021 placement and could hold approximately 74.7% if it exercised its warrants, giving it substantial influence over stockholder matters. Warrants and other equity awards also present dilution risk.
- After quarter-end, CEO Todd Patrick retired from day-to-day management effective August 1, 2021; Brian Varnum was appointed CEO. Patrick was to remain an advisor through December 2022 and a director at least until the next annual meeting.
Important facts for investors to verify
- Whether additional financing can be secured before the expected Q1 2022 runway end, and on what terms.
- Clinical-trial enrollment, timing, safety and efficacy progress for AP-PA02 and AP-SA02, including continuing COVID-19 and supply-chain effects.
- Actual grant receipts, eligible spending and any future MTEC, CFF, or SGI payment obligations.
- The effect of Innoviva’s voting control, warrant exercise, and potential future equity issuance on ownership and dilution.
- The accounting and timing of the July 2021 PPP loan forgiveness gain and any material post-quarter developments.