Armata Pharmaceuticals, Inc. — Q3 2019 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2019. The company is a clinical-stage biotechnology business developing bacteriophage treatments for antibiotic-resistant infections. The May 9, 2019 reverse merger with AmpliPhi means historical pre-merger results are those of C3J; comparisons are therefore affected by the merger and are not fully like-for-like.
Financial performance and position
| Metric | Q3 2019 | Q3 2018 | Nine months 2019 | Nine months 2018 |
|---|---|---|---|---|
| Revenue | $0 | $0 | $0 | $0 |
| Research and development | $3.0 million | $1.9 million | $8.2 million | $6.4 million |
| General and administrative | $3.8 million | $0.5 million | $7.2 million | $1.7 million |
| Net loss | $7.0 million | $2.8 million | $14.9 million | $15.6 million |
| Net loss per share, basic | $0.73 | $0.60 | $2.05 | $3.35 |
| Net cash used in operations | Not stated for quarter | Not stated for quarter | $12.9 million | $7.4 million |
- At September 30, cash and cash equivalents were $8.7 million; restricted cash was $0.7 million. Total assets were $29.3 million, liabilities $11.2 million, and stockholders’ equity $18.1 million.
- Cash, cash equivalents and restricted cash totaled $9.4 million at period-end, down $1.1 million from the start of 2019. Nine-month investing activities provided $2.8 million, including $3.0 million of cash acquired in the merger; financing activities provided $9.0 million, including $10.0 million net stock-sale proceeds and a $1.0 million deferred-consideration payment.
- No product revenue or gross margin was reported; margins are not meaningful for this pre-commercial company. The filing does not report conventional borrowing balances. Liabilities included $2.1 million of deferred asset-acquisition consideration and $3.2 million of operating lease liabilities.
Material changes and unusual items
- Q3 operating expenses rose to $6.8 million from $2.4 million, driven mainly by higher stock-based compensation, merger-related professional fees, personnel, and research costs. Nine-month R&D rose $1.8 million; G&A rose $5.5 million.
- Q3 stock-based compensation was $2.5 million, including $1.2 million of accelerated restricted-stock expense tied to executive severance. The company reported $8.7 million of unrecognized stock-compensation expense expected to be recognized over a weighted-average 2.1 years.
- The 2019 nine-month loss included a $1.1 million noncash gain when the SGI-related derivative liability was settled in connection with the merger. The 2018 nine-month comparison included $6.8 million of acquired in-process R&D expense related to synthetic phage assets.
- The merger added $10.3 million of acquired in-process R&D and $3.5 million of goodwill to the balance sheet. Merger-related expenses were approximately $1.1 million for the first nine months of 2019.
- Management classified the Slovenia facility’s net assets, valued at $0.6 million, as held for sale after deciding the facility was not essential following technology transfer. On November 8, 2019, the company agreed to sell the Slovenia subsidiary; it expects a noncash loss on sale, but the filing does not provide a clear amount. The buyer must maintain manufacturing capability, and Armata has a five-year repurchase right.
Outlook, liquidity and risks
- Management said existing resources were expected to fund planned operations into the second quarter of 2020, but the filing 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 required; availability and terms are uncertain.
- The company expects significant operating losses for years and no product revenue unless and until a candidate is developed and approved. It may need equity or debt financing, collaborations, grants, licensing, or other funding; equity issuance could dilute shareholders. Failure to raise funds could force cuts, delays, asset disposals, relinquishment of rights, or cessation of operations.
- Armata anticipated initiating an AP-PA02 clinical trial in cystic-fibrosis patients with Pseudomonas aeruginosa lung infections in 2020. Clinical trials for AP-SA01 or AP-SA02 in demanding Staphylococcus aureus indications depend on third-party funding; the company was seeking non-dilutive financing and considering smaller studies.
- Key risks include clinical and regulatory uncertainty for an unapproved technology, trial enrollment and manufacturing execution, financing needs, potential dilution, merger integration, and dependence on intellectual-property protections and third parties. Management reported disclosure controls effective at a reasonable-assurance level; integration-related internal-control changes were still being evaluated.
- Three merger-related shareholder lawsuits were dismissed. The filing reported no other legal proceeding expected by management to have a material adverse effect.
Key facts for investors to verify
- Whether subsequent financing extended the stated runway beyond Q2 2020, and on what terms.
- Actual operating cash burn, cash balance, and any changes in the going-concern assessment.
- Progress, timing, funding, and regulatory status of AP-PA02, AP-SA01, and AP-SA02 trials.
- Completion and economics of the Slovenia sale, including the expected loss and any future supply arrangement.
- Potential dilution: 1,854,262 warrants and 1,311,496 options were outstanding at September 30, 2019; the filing also describes future equity-plan share increases.