Savara Inc. — Q2 2019 Form 10-Q
Reporting period: Three and six months ended June 30, 2019; filed August 8, 2019. Savara is a clinical-stage orphan lung disease company with no product revenue or commercial operations. Its programs include Molgradex and AeroVanc.
Financial results and liquidity
| Metric | Q2 2019 | Q2 2018 | Six months 2019 | Six months 2018 |
|---|---|---|---|---|
| Revenue | No product revenue | No product revenue | No product revenue | No product revenue |
| Research and development expense | $10.5 million | $9.3 million | $20.5 million | $17.8 million |
| General and administrative expense | $4.2 million | $2.5 million | $7.0 million | $4.3 million |
| Net loss | $21.9 million | $11.6 million | $34.1 million | $38.4 million |
| Net loss per share, basic and diluted | $(0.57) | $(0.37) | $(0.91) | $(1.23) |
| Cash used in operating activities | — | — | $23.8 million | $20.0 million |
At June 30, cash and cash equivalents were $16.8 million and short-term investments were $94.9 million, totaling $111.7 million. Working capital was $105.1 million; accumulated deficit was $163.8 million. The company reported $25.0 million gross principal outstanding under its Silicon Valley Bank facility, with a $24.8 million carrying value. The loan bears interest at prime plus 3%; interest-only payments run through October 2020, followed by principal and interest payments, with maturity in November 2022. A further $20.0 million tranche was available on request through September 30, 2019, subject to conditions, including potential cash collateral requirements.
No meaningful operating margin is presented because the company has no product revenue. Six-month net loss included a $7.4 million noncash goodwill impairment. The balance sheet also reflected $1.0 million of operating lease liabilities.
Material changes versus comparable periods
- Q2 net loss increased by $10.3 million year over year, principally reflecting the $7.4 million goodwill impairment and higher R&D and G&A spending. Quarterly R&D increased 12.9%; G&A increased 69.4%.
- For the first half, net loss was lower than in 2018, when results included a $21.7 million impairment of acquired IPR&D and a $4.6 million income tax benefit. Excluding those unusual prior-year items, current-period losses and operating cash use continued to reflect growing development costs.
- First-half R&D rose 15.0%, primarily from increased Molgradex development, including the ENCORE study, and AeroVanc Phase 3 activity. G&A rose 63.9%, driven mainly by personnel and legal, accounting, insurance, commercial-strategy, and operating costs.
- Cash and cash equivalents declined $7.5 million from year-end 2018. Financing activities included $23.9 million net proceeds from at-the-market stock sales; 2.5 million shares were sold under the program in the first half.
Outlook, clinical developments, and risks
- Molgradex / IMPALA: The Phase 3 aPAP study, announced June 12, did not meet its primary endpoint, change in alveolar-arterial oxygen gradient versus placebo. The continuous-dose arm improved by 12.1 mmHg, while placebo improved by 8.8 mmHg. Two secondary endpoints—SGRQ and DLCO—showed statistically significant improvement; other secondary results were not statistically significant. Adverse-event frequencies were similar to placebo. The company said it would continue the program and planned regulatory discussions with FDA and EMA in October 2019, while assessing whether another Phase 3 study may be required. Breakthrough therapy designation was anticipated for filing, not granted.
- Other programs: Molgradex was in Phase 2a for NTM lung infection, including the ENCORE study in people with cystic fibrosis. AeroVanc was in Phase 3 for persistent MRSA lung infection in people with cystic fibrosis; management expected topline results in late 2020 or early 2021, subject to enrollment.
- Funding: Management expected continued significant operating losses and said existing capital resources were expected to fund planned operations into 2021. The company nevertheless stated it would need substantial additional capital; financing may not be available on acceptable terms or at all. Equity financing would dilute shareholders, while debt and partnership financing could impose restrictions or require rights concessions.
- Unusual transaction and commitments: In May 2019, Savara settled a contingent acquisition liability by issuing 1,105,216 shares valued at approximately $12.5 million, rather than making the previously contemplated contingent cash payments. New supply and manufacturing agreements with GEMA and Patheon add manufacturing, milestone, royalty, and purchasing obligations. Disclosed unaccrued contingent manufacturing and other commitments totaled $12.3 million.
- Key risks: Clinical and regulatory uncertainty following IMPALA, possible need for further trials, enrollment delays, reliance on third-party manufacturers and CROs, additional capital needs, potential future impairment, and dilution. The filing reports no material pending litigation. Management stated disclosure controls were effective as of June 30, 2019.
Most important facts for investors to verify
- FDA and EMA feedback on IMPALA, the potential regulatory route for Molgradex, and whether another Phase 3 study will be required.
- Whether available cash, investments, and any debt capacity support the stated operating runway, given cash burn and the need for additional financing.
- Enrollment and timing for AeroVanc Phase 3 results and progress in Molgradex’s NTM studies.
- Terms, milestones, royalties, and supply reliability under the GEMA and Patheon arrangements, including the disclosed contingent commitments.
- Potential shareholder dilution from further at-the-market sales, equity financing, or other share issuances.