Savara Inc. (Nasdaq: SVRA) — Q3 2020 Form 10-Q
Reporting period: Three and nine months ended September 30, 2020. Unaudited results. Savara is a clinical-stage orphan lung disease company; it has no product sales and has not commenced commercial operations.
Business context and pipeline
- Molgradex: Phase 3 development for autoimmune pulmonary alveolar proteinosis (aPAP); the company’s lead program.
- AeroVanc: Phase 3 for persistent MRSA lung infection in people with cystic fibrosis (CF).
- Apulmiq: Phase 3-ready inhaled ciprofloxacin for non-CF bronchiectasis (NCFB), licensed from Grifols in 2020.
Financial results and liquidity
| Metric (USD millions, except per-share data) | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Milestone revenue | 0.256 | — | 0.256 | — |
| Research and development expense | 5.6 | 9.6 | 24.9 | 30.1 |
| General and administrative expense | 5.4 | 2.8 | 11.5 | 9.8 |
| Operating loss | (10.8) | (12.4) | (36.3) | (47.5) |
| Net loss | (11.1) | (12.4) | (35.9) | (46.5) |
| Net loss per share, basic and diluted | (0.18) | (0.30) | (0.61) | (1.20) |
- Cash and investments: $35.2 million cash and cash equivalents plus $59.1 million short-term investments at September 30, 2020, or $94.3 million combined. Working capital was approximately $88.7 million.
- Cash flows, nine months: $27.5 million used in operations, $9.4 million provided by investing activities, and $3.7 million provided by financing activities. Cash declined $14.6 million from year-end 2019.
- Debt: $25 million gross principal outstanding under the Silicon Valley Bank facility; carrying value was $25.0 million, classified as long-term at quarter-end. Interest is the greater of prime plus 3% or 7.75%.
- Margins: Not meaningful as the company has no product revenue; reported revenue was a one-time license milestone, not product sales.
Changes versus comparable periods
- Q3 net loss narrowed by $1.3 million year over year. R&D expense fell $4.0 million, primarily as the IMPALA Phase 3 study wound down and AeroVanc enrollment and related activity ceased. G&A rose $2.6 million, including $0.8 million of noncash executive stock-award modification expense and about $1.5 million of former-executive severance.
- Nine-month net loss improved by $10.6 million. The comparison benefited from a $7.4 million goodwill impairment recorded in 2019; lower R&D was partly offset by $5.5 million of Apulmiq acquisition-related R&D expense in 2020.
- Q3 milestone revenue arose when the Japan Molgradex license terminated in August 2020 and Savara recognized the previously received milestone after determining its obligations were satisfied.
- Common shares outstanding increased from 50.8 million at December 31, 2019 to 54.1 million at September 30, 2020. The filing also reports substantial outstanding warrants and other potential dilution.
Outlook, developments, and key risks
- Management expects significant operating losses and additional funding needs for the foreseeable future. The filing does not provide a cash-runway estimate or guarantee that financing will be available on acceptable terms.
- Management planned to begin the 160-patient IMPALA 2 Phase 3 study of Molgradex in Q1 2021. It is designed as a 48-week, placebo-controlled study, with the primary DLCO analysis at week 24. The prior IMPALA Phase 3 study missed its primary endpoint; the FDA said the submitted data did not provide sufficient evidence of efficacy and safety. Breakthrough Therapy designation does not assure approval.
- At filing, Savara expected AeroVanc AVAIL Phase 3 topline results by the end of 2020. Enrollment had been terminated in March because of COVID-19; the company stated it would communicate next steps for Apulmiq as soon as possible and was not pursuing further Molgradex development for NTM.
- COVID-19 could delay patient recruitment, studies, suppliers, manufacturing, and clinical progress. The impact remained uncertain, including for planned Molgradex enrollment.
- The SVB loan has a clinical-trial condition: unless an ongoing Phase 3 or Phase 4 Molgradex aPAP trial had dosed its first patient by March 31, 2021, the interest-only period would end and principal and interest payments would begin in April 2021. A separate covenant requires evidence by June 30, 2021 of at least $25 million gross proceeds from warrant exercises or other equity issuance.
- The Apulmiq license includes up to $50 million in development milestones, up to $100 million in sales milestones, and tiered royalties. These milestones were not accrued because they were not considered probable or reasonably estimable.
- The CEO and Chief Business Development Officer resigned in September 2020; Matthew Pauls became Interim CEO and Chairman. The filing reports no material pending litigation and states disclosure controls were effective as of September 30, 2020.
Important facts for investors to verify
- Whether IMPALA 2 began on schedule, its enrollment and endpoint results, and any subsequent FDA or EMA feedback.
- AeroVanc AVAIL results and the company’s next development decision for AeroVanc and Apulmiq.
- Cash burn and financing needs relative to the $94.3 million cash-and-investment balance, including subsequent equity issuance or warrant exercises.
- Compliance with the SVB trial and equity-proceeds covenants, and resulting loan repayment timing.
- Potential dilution from outstanding warrants, options, and other reserved shares; also verify the timing and conditions of potential warrant proceeds.
- Any COVID-19-related changes to clinical timelines, supply availability, and development costs.