Savara Inc. — FY2017 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2017; filed March 14, 2018. Although the request identifies 2017 Q4, this is an annual report. Fourth-quarter figures are noted separately below. Savara is a clinical-stage orphan lung disease company with no product sales. The April 2017 merger with Mast Therapeutics was accounted for as a reverse acquisition, so the financial statements principally reflect the pre-merger Savara business; comparisons are affected by the merger and the 2016 Serendex acquisition.
Financial performance and position
| Metric | FY2017 | FY2016 |
|---|---|---|
| Revenue | $0 | $0.4 million grant and award revenue |
| Research and development expense | $18.5 million | $8.2 million |
| General and administrative expense | $11.1 million | $2.8 million |
| Operating loss | $30.0 million | $10.9 million |
| Net loss | $29.8 million | $10.9 million |
| Net loss attributable to common stockholders | $30.8 million | $11.0 million |
| Basic and diluted loss per share | $1.76 | $5.62 |
| Cash used in operating activities | $28.2 million | $8.4 million |
FY2017 R&D spending increased 126%, mainly reflecting Molgradex development, AeroVanc Phase 3 preparation and initiation, and Aironite costs. G&A rose substantially, including merger and financing costs, higher public-company and personnel expenses, and a $2.2 million increase in Serendex contingent consideration. Other expense included $1.8 million related to extinguishment of convertible notes. The $3.6 million tax benefit included a $2.8 million deferred-tax benefit from the U.S. corporate tax-rate change and a Danish R&D credit; it reduced reported net loss but did not represent product revenue.
Fourth quarter: Revenue was $0; operating loss was $9.3 million, net loss was $6.5 million, and basic and diluted loss per share was $0.23. Annual operating and net margins are not meaningful because the company had no product revenue.
At year-end, cash and cash equivalents were $22.1 million and short-term investments were $72.2 million, totaling $94.3 million; working capital was $91.8 million and accumulated deficit was $68.2 million. Management said existing resources were expected to fund planned operations into 2020, while also stating that substantial additional capital would be required and that funding needs depend on development progress and other factors.
Debt included a $15.0 million gross-principal Silicon Valley Bank term loan, carried at $14.8 million net of discounts and issuance costs. It bears interest at prime plus 4.25%; interest-only payments run through March 2019, with scheduled maturity in March 2021. The loan is secured by company assets, has a negative pledge on intellectual property, and includes restrictive covenants. Contractual obligations totaled $21.7 million, including estimated loan payments and interest, capital leases and operating leases.
Business, developments and outlook
- Molgradex: In Phase 3 IMPALA for pulmonary alveolar proteinosis (PAP), with Orphan Drug Designation in the U.S. and EU. Savara expanded the trial into U.S. sites under an FDA IND in December 2017. In February 2018, the target sample size was increased from 90 to 135 to support statistical power across key secondary endpoints. Enrollment was expected to finish in Q3 2018 and topline results in Q2 2019. Molgradex also entered Phase 2a OPTIMA development for NTM lung infection in Q1 2018; enrollment was expected to finish in Q3 2018.
- AeroVanc: Phase 3 AVAIL study began enrolling in the U.S. in September 2017 and Canada in December 2017 for persistent MRSA lung infection in people with cystic fibrosis. The study planned approximately 200 participants; enrollment was expected to finish in Q1 2019, with topline results expected in the second half of 2019. Phase 2 showed reduced sputum MRSA density, but lung-function findings were not statistically significant across all ages; encouraging younger-subgroup findings were a basis for the Phase 3 design. AeroVanc has U.S. Orphan Drug and QIDP designations.
- Aironite: Acquired in the Mast merger. In March 2018, the Phase 2 INDIE study in HFpEF failed its primary and secondary endpoints. Savara said it would not support further development and identified the results as an impairment-triggering event requiring asset analysis.
- Financing and corporate changes: Savara completed the Mast merger in April 2017; former Mast holders owned about 23% of the combined company. 2017 financing included two public offerings with approximately $89.6 million net proceeds, approximately $1.7 million from ATM sales, and $15 million drawn under the SVB facility. These financings strengthened liquidity but increased share count and dilution.
Risks, contingencies and unusual items
- Savara has never been profitable, has no approved products or product revenue, and expects continuing losses. Clinical efficacy, safety, enrollment, regulatory approval, commercialization and future financing are uncertain; management warned that failure to raise capital could require delays, reductions or termination of programs.
- The company relies on third-party manufacturers and clinical vendors, with limited backup supply arrangements. Molgradex manufacturing was being transferred to a new drug-substance supplier, and changes to formulations, sites or processes could require additional studies or delay approval.
- Molgradex lacked issued patent protection for PAP; the company cited orphan exclusivity as a principal competitive protection. AeroVanc had formulation patents, including U.S. protection expected to extend at least to 2032. Intellectual-property challenges, competition and reimbursement or pricing pressure remain risks.
- Potential contingent obligations include up to $21.5 million of Serendex approval milestones, manufacturing milestones for Molgradex, and future royalties. AeroVanc’s amended Cystic Fibrosis Foundation award could require commercialization- or transaction-linked payments if funds are drawn; none of the additional $5 million award had been drawn by year-end. No liability was recorded for contingent payments whose triggering events had not occurred.
- The merger and reverse acquisition affected financial comparability. The company also reported approximately $60.7 million in goodwill and acquired in-process R&D, subject to impairment testing. The negative Aironite results after year-end prompted an impairment assessment.
- The financial statement audit opinion was unqualified. Management concluded disclosure controls were effective, but did not include an internal-control-over-financial-reporting assessment or auditor attestation for 2017, citing the reverse acquisition; management said it would provide one in the 2018 Form 10-K. No material pending litigation was reported.
Important facts for investors to verify
- Whether the company’s stated runway into 2020 remains achievable under actual clinical spending, timelines and financing assumptions.
- IMPALA’s enrollment, the implications of the increase to 135 patients, and the eventual results across the primary and FDA-focused secondary endpoints.
- AVAIL enrollment and results, including safety and efficacy in the younger primary-analysis population and the required carcinogenicity study.
- Commercial readiness and continuity of Molgradex and AeroVanc supply, including manufacturing transfers, scale-up, regulatory comparability and vendor concentration.
- Debt terms and covenant compliance, future dilution from equity or ATM issuance, and the potential exercise of outstanding warrants and other equity awards.
- The amount and timing of contingent acquisition, manufacturing and Cystic Fibrosis Foundation payments, and the outcome of the Aironite impairment assessment.