Armata Pharmaceuticals, Inc. — Q2 2020 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2020. Armata is a clinical-stage biotechnology company developing bacteriophage therapies for antibiotic-resistant infections. Its financial statements are unaudited. Comparisons with 2019 are affected by the May 2019 merger; C3J is the accounting predecessor.
Financial performance and position
| Metric | Q2 2020 | Q2 2019 | Six months 2020 | Six months 2019 |
|---|---|---|---|---|
| Grant revenue | $31,000 | — | $31,000 | — |
| Research and development expense | $2.648 million | $3.076 million | $5.398 million | $5.137 million |
| General and administrative expense | $1.973 million | $2.082 million | $4.144 million | $3.462 million |
| Loss from operations | $4.590 million | $5.158 million | $9.511 million | $8.599 million |
| Net loss | $4.710 million | $4.199 million | $9.788 million | $7.938 million |
| Basic net loss per share | $0.26 | $0.56 | $0.68 | $1.30 |
Revenue is grant-related; the company reports no product sales and does not expect product revenue before successful development and regulatory approval. Profit margins are not meaningful given the development-stage business and negligible revenue.
- Cash and liquidity: June 30 cash and cash equivalents were $19.786 million, plus $1.2 million restricted cash. Current assets were $20.684 million and current liabilities $5.207 million.
- Cash flow: Six-month operating cash use was $8.088 million; investing cash use was $377,000; financing provided $22.718 million. Cash, cash equivalents and restricted cash increased $14.253 million to $20.986 million.
- Debt and obligations: The company recorded a $718,000 current PPP loan, bearing 1% interest. Operating lease liabilities totaled approximately $11.944 million, following an amendment extending the Marina del Rey lease through 2031.
- Equity: The March Innoviva private placement raised $25.0 million gross through 8,710,800 shares and an equal number of warrants at $2.87 per share. At quarter-end, 18,641,501 shares were outstanding and warrants covered 10,547,363 shares.
Changes versus prior comparable periods
- Q2 operating loss narrowed by $568,000, mainly as R&D and G&A expenses declined. Q2 net loss nevertheless increased by $511,000, as Q2 2019 included a $1.157 million gain from extinguishing a derivative liability.
- Six-month operating loss increased $912,000 and net loss increased $1.850 million. R&D expense rose $261,000 and G&A expense rose $682,000; reported R&D expense included Cystic Fibrosis Foundation (CFF) award credits of $1.0 million for the half-year.
- Cash increased substantially, primarily due to the Innoviva financing. Share count also rose materially: 18.64 million shares at June 30, 2020 versus 9.92 million at December 31, 2019.
Outlook, commentary and key risks
- Management estimated existing resources would fund planned operations through the first half of 2021, but stated that recurring losses and negative operating cash flows raise substantial doubt about the company’s ability to continue as a going concern. Additional capital will be needed; timing and availability are uncertain.
- Management expects significant and increasing operating losses for at least several years. It anticipated a Phase 1b/2 AP-PA02 study for Pseudomonas infections in cystic fibrosis patients during 2020, subject to COVID-19 conditions allowing enrollment, and expected an AP-SA02 study for complicated Staphylococcus aureus bacteremia in 2021, also subject to enrollment conditions.
- The CFF award provides up to $5.0 million for AP-PA02, with payments tied to milestones and potential repayment or licensing consequences following specified development interruptions. The MTEC agreement provides a $15.0 million cost-reimbursed grant for AP-SA02; $31,000 was recognized as grant revenue by June 30. Commercialization or licensing could trigger payments to MTEC.
- COVID-19 could delay patient enrollment, trials, research, manufacturing, or supply chains. The company said it could not estimate the pandemic’s 2020 financial impact, although it had not experienced material operational interruptions to date.
- The PPP loan’s forgiveness was not assured. The company planned to apply in Q3 2020 and anticipated forgiveness under then-current guidance, while noting potential repayment, audit, penalty, and reputational risks.
- Innoviva held approximately 46.7% of shares and voting power; exercise of its warrants could increase its ownership to approximately 63.7%. The large warrant overhang and potential future fundraising could dilute existing holders.
- No material legal proceeding was identified. Management reported disclosure controls were effective at the reasonable-assurance level and no material quarterly change in internal control over financial reporting.
Important facts for investors to verify
- Whether cash burn and trial spending remain consistent with management’s stated funding runway through the first half of 2021, and the company’s plans for additional capital.
- Clinical trial start and enrollment progress for AP-PA02 and AP-SA02, especially any COVID-19-related delays.
- Grant cash received versus expenses incurred, milestone conditions, and any repayment, royalty, or licensing obligations under the CFF and MTEC agreements.
- PPP loan forgiveness outcome and any resulting repayment or compliance issues.
- Potential dilution and governance implications from Innoviva’s warrants, ownership, and director-designation rights.
- Costs and obligations associated with the lease extension through 2031 and the company’s overall going-concern status.