Savara Inc. — Q3 2019 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2019. Savara is a clinical-stage orphan lung disease company with no product revenue or commercial operations. Its pipeline includes Molgradex for aPAP and NTM-related indications, and AeroVanc for persistent MRSA lung infection in people with cystic fibrosis.
Key financial metrics
| Metric | Q3 2019 / September 30, 2019 | Comparable period / prior year-end |
|---|---|---|
| Revenue | No product revenue | No product revenue to date |
| Research and development expense | $9.6 million for Q3; $30.1 million for nine months | $9.5 million and $27.3 million, respectively, in 2018 |
| General and administrative expense | $2.8 million for Q3; $9.8 million for nine months | $3.1 million and $7.4 million, respectively, in 2018 |
| Net loss | $12.4 million for Q3; $46.5 million for nine months | $12.6 million and $51.0 million, respectively, in 2018 |
| Net loss per share | $0.30 for Q3; $1.20 for nine months | $0.36 and $1.57, respectively, in 2018 |
| Cash and cash equivalents | $17.8 million | $24.3 million at December 31, 2018 |
| Short-term investments | $88.5 million | $86.5 million at December 31, 2018 |
| Working capital | $100.1 million | — |
| Debt facility | $25.0 million gross principal; $25.0 million long-term carrying value approximately $25.0 million ($25.0 million principal and end-of-term charge, net of discounts) | $24.5 million carrying value at December 31, 2018 |
For the nine months, operating cash use was $35.2 million, investing cash use was $1.0 million, and financing provided $29.7 million, mainly from at-the-market (ATM) stock sales. Cash, cash equivalents and short-term investments totaled $106.3 million at quarter-end. Profit margins are not applicable because the company had no product revenue.
Changes versus comparable periods
- Q3 operating expenses fell $0.3 million year over year, and net loss narrowed by $0.2 million. R&D was broadly flat; lower G&A partly reflected a prior-year noncash stock-compensation charge.
- Nine-month R&D increased $2.7 million, principally from Molgradex development, including the ENCORE study, and AeroVanc Phase 3 activity. G&A increased $2.4 million, including higher personnel and Molgradex commercial-planning costs.
- Nine-month net loss was lower than in 2018, but comparisons include unusual impairment and tax items: 2019 included a $7.4 million goodwill impairment; 2018 included a $21.7 million IPR&D impairment and a $4.6 million income tax benefit.
- Shares outstanding rose to 41.2 million from 35.1 million at December 31, 2018, including 4.8 million shares sold through the ATM program during the first nine months for $29.6 million net proceeds.
Outlook, risks and unusual items
- Molgradex regulatory setback: On October 1, 2019, the FDA said information in Savara’s Type C meeting briefing package did not provide sufficient evidence of efficacy and safety for Molgradex in aPAP. The Phase 3 IMPALA study had missed its primary endpoint, although two secondary endpoints showed statistically significant improvement. Savara was evaluating possible next steps, including a potential additional Phase 3 study, breakthrough therapy designation and regulatory filings. Additional study or regulatory work could require more time and capital.
- Subsequent impairment: Following the FDA response and a significant share-price decline, Savara identified a Q4 2019 goodwill impairment trigger. It disclosed that a $19.4 million fourth-quarter impairment would reduce goodwill to zero; this charge was not included in the September 30 financial statements. The company reported no impairment of IPR&D from that subsequent-event assessment.
- Liquidity and financing: Management said existing capital was expected to fund planned operations into 2021, but Savara would need substantial additional capital. Financing availability, terms and timing are uncertain; failure to raise funds could force delays, reductions or termination of development activities. Equity financing could dilute shareholders.
- Clinical outlook: Savara expected AeroVanc Phase 3 topline results in late 2020 or early 2021, subject to enrollment. Enrollment was slower than expected. Clinical, regulatory and manufacturing outcomes remain uncertain; the company expects significant R&D spending and continued losses.
- Debt and commitments: The SVB loan bears interest at prime plus 3%, has interest-only payments through October 2020, then scheduled principal and interest payments, and matures November 1, 2022. It is secured by company assets, with a negative pledge on intellectual property and restrictive covenants. Disclosed unaccrued manufacturing, regulatory and other contingent commitments totaled $11.3 million, contingent on specified milestones.
- Contingent consideration: In May 2019, Savara settled the contingent liability by issuing 1.1 million shares valued at $12.5 million; the liability was eliminated.
- There were no material pending legal proceedings. Management assessed disclosure controls as effective; it reported no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- FDA feedback and the company’s subsequent plans, cost and timing for Molgradex in aPAP, including whether another Phase 3 trial is required.
- Whether management’s runway estimate into 2021 remains valid given cash burn, any added Molgradex work and potential financing needs.
- The reported Q4 goodwill impairment of $19.4 million and its effect on subsequent-period financial statements.
- AeroVanc Phase 3 enrollment progress and expected timing of topline results.
- Outstanding loan terms, covenant compliance, milestone commitments and potential dilution from future equity issuance.