Savara Inc. Form 8-K Summary
Business Context and Reporting Period
This Current Report on Form 8-K, dated June 1, 2017, provides updated pro forma financial information and clinical development updates for Savara Inc. (formerly Mast Therapeutics, Inc.) following its business combination with Aravas Inc. (formerly Savara Inc.) completed on April 27, 2017. The filing also announces a proposed offering of common stock. Aravas is the accounting acquirer in this reverse merger.
Key Financial Metrics (Pro Forma)
The following unaudited pro forma condensed combined financial data reflects the merger as if it occurred on January 1, 2016, and March 31, 2017, respectively.
| Metric | Three Months Ended Mar 31, 2017 | Year Ended Dec 31, 2016 |
|---|---|---|
| Grant Revenue | $94,000 | $528,000 |
| Total Operating Expenses | $6,821,000 | $54,081,000 |
| Net Loss | $(7,078,000) | $(51,806,000) |
| Net Loss Attributable to Common Stockholders | $(7,102,000) | $(51,900,000) |
| Basic/Diluted Net Loss Per Share | $(0.46) | $(4.12) |
| Pro Forma Cash and Equivalents (as of Mar 31, 2017) | $22,222,000 | N/A |
| Pro Forma Total Debt (as of Mar 31, 2017) | $7,500,000 | N/A |
Note: The pro forma balance sheet reflects a new debt facility of $7.5 million incurred to finance the acquisition, offset by the extinguishment of $3.5 million in existing Savara debt.
Material Changes and Transaction Details
- Merger Structure: The transaction is a reverse merger where Aravas is the accounting acquirer. Aravas shareholders own approximately 77% of the combined company, while Savara shareholders own approximately 23%.
- Purchase Price: The preliminary estimated purchase price is $34.0 million, based on Savara's share price as of April 27, 2017. This includes $21.4 million allocated to goodwill and $12.6 million to net tangible and intangible assets.
- Debt Restructuring: The pro forma adjustments reflect the conversion of $4.3 million in Aravas convertible notes into common stock and the assumption of new debt to fund the transaction.
- Transaction Costs: Nonrecurring transaction costs of $3.7 million (Q1 2017) and $0.6 million (FY 2016) were eliminated in the pro forma statements.
Clinical Development, Outlook, and Risks
Molgradex (Pulmonary Alveolar Proteinosis - PAP):
- Currently conducting a Phase 3 study in Europe and Japan with up to 90 patients.
- Enrollment expected to complete in Q1 2018; top-line data expected in Q4 2018.
- Primary endpoint: Absolute change in arterial-alveolar oxygen gradient ((A-a)DO2).
- Risk: FDA guidance may require additional patients or endpoint changes for U.S. approval. Formulation changes could necessitate additional studies.
AeroVanc (Cystic Fibrosis - MRSA):
- Plans to initiate a Phase 3 study in Q3 2017 in the U.S. and Canada.
- Study design: ~200 patients, randomized, double-blind, placebo-controlled.
- Primary endpoint: Absolute change in FEV1 percent predicted at Week 4 and Week 20.
- Risk: Requires a two-year nonclinical carcinogenicity study; results will be known shortly before potential NDA submission. FDA may not view results as robust enough for approval.
Aironite (Heart Failure):
- Supporting four investigator-sponsored Phase 2 studies, including the INDIE-HFpEF study (results expected H1 2018) and INABLE-TRAINING study.
Regulatory and Financial Risks:
- Significant uncertainty exists regarding regulatory approval timelines and outcomes for all product candidates.
- The company is pre-revenue and relies on grant funding and equity/debt financing.
- Forward-looking statements regarding clinical trial results and regulatory approvals are subject to substantial risks and uncertainties.
Key Facts for Investor Verification
- Cash Runway: Verify the sufficiency of the $22.2 million pro forma cash balance against the high burn rate (approx. $7 million net loss per quarter) and upcoming Phase 3 trial costs.
- Debt Obligations: Confirm the terms of the new $7.5 million debt facility and the impact of interest expenses on future liquidity.
- Regulatory Pathways: Monitor FDA feedback on the Molgradex Phase 3 study design and the status of the AeroVanc carcinogenicity study, as these are critical path items for approval.
- Merger Accounting: Review the final purchase price allocation, as the preliminary goodwill of $21.4 million is subject to adjustment based on final fair value assessments.
- Grant Revenue: Assess the sustainability of grant revenue ($94k in Q1 2017) as a portion of the operating budget.