Armata Pharmaceuticals, Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021. Armata is a clinical-stage biotechnology company developing bacteriophage therapeutics for difficult-to-treat and antibiotic-resistant bacterial infections. It reported no product sales; reported revenue was grant-related.
Financial performance and liquidity
| Metric | Q1 2021 | Q1 2020 |
|---|---|---|
| Grant revenue | $1.066 million | None |
| Research and development expense | $4.350 million | $2.750 million |
| General and administrative expense | $2.151 million | $2.171 million |
| Operating loss | $5.435 million | $4.921 million |
| Net loss | $5.495 million | $5.078 million |
| Basic and diluted loss per share | $0.27 | $0.49 |
| Cash used in operating activities | $5.475 million | $4.232 million |
At March 31, 2021, cash and cash equivalents were $22.455 million, plus $1.200 million of restricted cash. Total current assets were $24.039 million and current liabilities were $4.981 million. The balance sheet showed a $724,000 PPP loan and operating lease liabilities; the filing does not present a conventional funded-debt total. No gross margin is meaningful because the company had no product sales.
Material changes versus the prior period
- R&D expense rose $1.6 million, mainly from increased staffing and clinical-trial and laboratory activity, partly offset by changes in grant and tax-rebate credits.
- Grant revenue increased to $1.066 million, recognized for costs on the AP-SA02 program under the MTEC award.
- Net loss increased by $417,000, while loss per share narrowed from $0.49 to $0.27 as weighted-average shares increased to 20.46 million from 10.45 million.
- Operating cash use increased by $1.243 million year over year. Financing provided $18.579 million, chiefly from the Innoviva private placement.
- In the 2021 private placement, Innoviva bought 6.154 million shares and warrants for up to 6.154 million additional shares for aggregate proceeds of $20.0 million. Shares outstanding rose to 24.94 million at quarter-end.
Outlook, management commentary and risks
- Management estimated existing resources would fund planned operations into the first quarter of 2022. The filing nevertheless states 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, and its availability is not assured.
- Armata expected to advance AP-PA02 in a Phase 1b/2a study for Pseudomonas aeruginosa lung infections in cystic fibrosis patients and planned a 2021 Phase 1/2 study of AP-SA02 for Staphylococcus aureus bacteremia, subject to pandemic-related conditions. The MTEC award provides up to $15 million for AP-SA02 development; the Cystic Fibrosis Foundation award provides up to $5 million for AP-PA02.
- COVID-19 had delayed clinical-site identification and initiation, and the company experienced some first-quarter delays in obtaining supply-chain materials. Further effects on enrollment, manufacturing, suppliers and financing were uncertain.
- Innoviva held approximately 59.6% of outstanding shares after the placement and could hold approximately 74.7% if it exercised its warrants, giving it substantial influence over shareholder votes. Warrants outstanding totaled 16.647 million.
- The company had not applied for PPP loan forgiveness as of the filing and could not assure eligibility or forgiveness. A portion not forgiven would remain repayable.
- Management reported disclosure controls were effective at the reasonable-assurance level and no material quarterly change in internal control over financial reporting was identified. The company reported no material-adverse-effect legal proceeding and no off-balance-sheet arrangements.
Important facts for investors to verify
- Whether the company secures further financing before its estimated runway expires, and the resulting dilution or impact on product rights.
- Actual enrollment, timing and results for the AP-PA02 and AP-SA02 clinical programs, including the effects of COVID-19 and supply availability.
- Future grant receipts and allowable-cost recognition, including MTEC funding and CFF award milestones and obligations.
- PPP loan forgiveness status and repayment requirements if forgiveness is denied.
- Innoviva’s voting influence and the potential dilution from outstanding warrants and equity awards.