Business Context and Reporting Period
Company: Savara Inc. (formerly Mast Therapeutics, Inc.)
Reporting Date: April 27, 2017
Event: Completion of a reverse merger with Savara Inc. (formerly Aravas Inc.). Mast Therapeutics, Inc. merged with a subsidiary of Savara, with Savara surviving as a wholly-owned subsidiary. The combined entity operates under the name "Savara Inc." and trades on the Nasdaq Capital Market under the ticker symbol "SVRA".
Corporate Actions:
- 1:70 Reverse Stock Split of Mast Therapeutics common stock.
- Exchange Ratio: 0.5860 shares of post-split Mast stock for each share of Savara stock.
- Post-merger ownership: Former Savara stockholders own approximately 77%; former Mast stockholders own approximately 23%.
- Change in Control: Former Mast directors and officers resigned; new board and executive team appointed from Savara leadership.
Key Financial Metrics
Liquidity and Cash Position:
- Cash Balance (Post-Merger): Approximately $16 million (includes ~$4 million from warrant exercises and capital invested into Savara prior to closing).
- Historical Cash (Savara as of Dec 31, 2016): $13.4 million.
- Revenue: $0.4 million (Grant revenue only; no product revenue).
- Net Loss: $10.9 million.
- Operating Expenses: $11.3 million (R&D: $8.2 million; G&A: $2.8 million).
- Accumulated Deficit: $38.4 million.
- Working Capital: $11.2 million.
- Convertible promissory notes outstanding as of Dec 31, 2016: $3.4 million (amended to convert into equity upon merger closing).
Material Changes vs. Prior Period
Operational Shift: The Company's primary business has shifted from Mast Therapeutics' previous focus to Savara's clinical-stage specialty pharmaceutical operations focused on rare respiratory diseases.
Financial Impact of Merger:
- Elimination of Mast Therapeutics' historical accumulated deficit and equity balances.
- Assumption of Savara's liabilities and contingent consideration related to the prior acquisition of Serendex Pharmaceuticals ($9.7 million).
- Conversion of Savara's convertible notes and preferred stock into common stock of the combined entity.
Guidance, Outlook, and Risks
Business Strategy: Focus on developing and commercializing two lead product candidates:
- AeroVanc: Inhaled vancomycin for persistent MRSA lung infection in Cystic Fibrosis (CF) patients. Phase 3 study anticipated to start in Q3 2017.
- Molgradex: Inhaled GM-CSF for Pulmonary Alveolar Proteinosis (PAP). Phase 2/3 study ongoing in Europe and Japan; top-line results expected in Q1 2018.
Risks and Contingencies:
- Clinical Risk: High failure rate in clinical trials; Phase 3 results for AeroVanc and Phase 2/3 results for Molgradex are not guaranteed.
- Regulatory Risk: Uncertainty regarding FDA and EMA approval requirements and timelines.
- Manufacturing Risk: Reliance on third-party contract manufacturers for all drug substance and product.
- Intellectual Property: Molgradex relies heavily on Orphan Drug exclusivity rather than patents for the specific indication.
- Section 382 Limitations: The merger likely resulted in an ownership change, potentially limiting the use of net operating loss carryforwards.
Investor Verification Checklist
- Cash Runway: Verify the $16 million post-merger cash balance against the projected burn rate for the upcoming Phase 3 (AeroVanc) and Phase 2/3 (Molgradex) trials.
- Merger Accounting: Confirm the final purchase price allocation and the treatment of Mast Therapeutics' net operating loss carryforwards under Section 382 of the Internal Revenue Code.
- Clinical Timelines: Monitor the initiation of the AeroVanc Phase 3 study (targeted Q3 2017) and the reporting of Molgradex top-line results (targeted Q1 2018).
- Regulatory Pathways: Track the outcome of FDA discussions regarding the Molgradex US clinical program and the final design of the AeroVanc Phase 3 study.
- Contingent Liabilities: Review the $9.7 million contingent consideration liability related to the Serendex acquisition and the milestone payments due to the Cystic Fibrosis Foundation.