Armata Pharmaceuticals, Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023. Armata is a clinical-stage biotechnology company developing bacteriophage therapies for antibiotic-resistant and difficult-to-treat bacterial infections. It has no product sales; reported revenue is grant funding.
Financial results and liquidity
| Metric | Q1 2023 | Q1 2022 |
|---|---|---|
| Grant revenue | $0.8 million | $1.2 million |
| Research and development expense | $9.6 million | $8.0 million |
| General and administrative expense | $2.5 million | $2.0 million |
| Total operating expenses | $12.1 million | $10.0 million |
| Loss from operations | $11.3 million | $8.8 million |
| Net loss | $14.5 million | $8.8 million |
| Net loss per share, basic and diluted | $0.40 | $0.30 |
| Net cash used in operating activities | $17.6 million | $3.5 million |
- Grant revenue declined 35.6%; operating expenses increased 21.3%, with higher clinical and laboratory activity, personnel and lease costs contributing to R&D growth. G&A increased mainly due to legal and professional fees and lease costs.
- A $3.2 million noncash loss from remeasuring convertible debt at fair value contributed to the higher net loss. No income-tax expense or benefit was recorded. Gross margin is not meaningful for this grant-funded, pre-commercial business.
- At March 31, cash and cash equivalents were $25.1 million, with an additional $5.7 million of restricted cash. Total cash, cash equivalents and restricted cash were $30.8 million. Total assets were $108.8 million and total liabilities were $86.3 million.
- The company reported $32.4 million of current convertible debt at fair value and total operating lease liabilities of about $44.9 million. Current liabilities exceeded current assets by approximately $12.8 million.
- Financing provided $29.6 million net from the Innoviva loan; capital expenditures were $2.0 million. Operating cash use rose substantially year over year, and accumulated deficit reached $254.3 million.
Material developments, outlook and risks
- Funding and going concern: Management said existing resources were expected to fund planned operations into the third quarter of 2023. 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. Further capital is required; financing may be unavailable or costly, and equity or conversion could dilute shareholders.
- Innoviva loan: The January 2023 secured loan has $30 million principal, bears 8% annual interest and matures January 10, 2024. It is secured by substantially all company and guarantor assets. It may convert upon a qualifying financing or at the lender’s option under specified terms. Fair-value measurement uses significant unobservable inputs.
- Clinical programs: Armata reported positive topline results from the Phase 1b/2a SWARM study of inhaled AP-PA02 in cystic fibrosis patients: it was reported as well tolerated, with exposure in sputum and exploratory trends in bacterial-load reduction. The company cautioned that early-stage results may not predict later trials. The AP-SA02 bacteremia study is supported by a DoD/MTEC award increased to $16.3 million and extended into 2024; the AP-PA02 Tailwind Phase 2 study in non-CF bronchiectasis dosed its first patient in Q1. A Phase 1b/2a AP-SA02 study for periprosthetic joint infection was planned for 2023.
- Other risks and events: The company remains pre-commercial and expects significant operating losses. Key risks include clinical, regulatory and manufacturing uncertainty, including cGMP compliance and construction/transfer to a new Los Angeles facility; reliance on suppliers and trial partners; and future financing and dilution. After First Republic Bank entered receivership and its assets were sold to JPMorgan Chase on May 1, 2023, Armata reported access to its accounts, including funds previously held there, while noting approximately $4.6 million exceeded FDIC insurance limits.
- Shareholder considerations: Innoviva owns more than 50% of outstanding common shares; the filing describes approximately 70% ownership following its 2022 investment. There were 20.5 million warrants outstanding at quarter-end, in addition to options and potential loan conversion shares. No dividends are anticipated in the foreseeable future.
- Management reported disclosure controls effective at a reasonable-assurance level as of March 31, 2023; the evaluation of internal-control changes was ongoing. The filing reported no material legal proceeding or off-balance-sheet arrangement.
Important facts for investors to verify
- Whether Armata secured additional financing after the stated Q3 2023 cash runway estimate, and how any financing affects the going-concern assessment.
- The loan’s outstanding balance, interest accrual, fair-value assumptions, conversion or repayment status, and resulting potential dilution and asset-security implications.
- Full SWARM study data and subsequent clinical, safety, efficacy, enrollment and regulatory milestones for AP-PA02 and AP-SA02.
- Operating cash burn, construction spending and reimbursement timing for the Los Angeles facility, plus current unrestricted cash and restricted-cash availability.
- Current status of the First Republic-related funds and the company’s continuing compliance with grant, manufacturing and clinical-trial requirements.