Savara Inc. — Q1 2018 Form 10-Q
Business context and reporting period
Unaudited results for the three months ended March 31, 2018; balance-sheet comparisons are with December 31, 2017. Savara is a clinical-stage orphan lung disease company with no product revenue or commercial operations. Its lead programs are Molgradex (Phase 3 for pulmonary alveolar proteinosis, or PAP; Phase 2a for nontuberculous mycobacterial, or NTM, lung infection) and AeroVanc (Phase 3 for persistent MRSA lung infection in people with cystic fibrosis).
Financial performance and liquidity
| Metric | Q1 2018 | Q1 2017 / comparison |
|---|---|---|
| Revenue | No product revenue | No product revenue |
| Research and development expense | $8.5 million | $2.9 million |
| General and administrative expense | $1.8 million | $1.7 million |
| Impairment of acquired IPR&D | $21.7 million | None |
| Operating loss | $32.1 million | $4.8 million |
| Net loss | $26.8 million | $5.0 million |
| Basic and diluted loss per share | $0.88 | $1.65 |
| Cash used in operating activities | $9.7 million | $2.8 million |
The $21.7 million Aironite IPR&D impairment drove much of the year-over-year increase in reported loss; it followed a Phase 2 study failure and was accompanied by a $4.6 million deferred-tax-liability reversal. R&D expense rose $5.6 million, primarily from higher Molgradex and AeroVanc development activity. The loss-per-share comparison is not directly indicative of operating performance: weighted-average shares increased from 3.0 million to 30.5 million following the 2017 merger and financing activity.
At March 31, cash and cash equivalents were $22.1 million and short-term investments were $62.9 million, or $85.0 million combined. Working capital was $82.2 million; accumulated deficit was $95.1 million. Cash and investments were broadly stable in total from year-end, while cash from operations was funded in part by net maturities of investments. The company raised $0.5 million net through its at-the-market program during the quarter.
Debt facility carrying value was $14.9 million; gross principal was $15.0 million. The Silicon Valley Bank loan bears interest at prime plus 4.25%, with interest-only payments through March 2019 and scheduled maturity on March 1, 2021. Total liabilities were $35.2 million. No operating margin is meaningful because the company had no revenue.
Material changes, outlook, and risks
- Aironite: Savara wrote off the acquired IPR&D asset in full after unfavorable Phase 2 results; it said it would not pursue further development.
- Molgradex: FDA approval of the IND in February 2018 allowed expansion of the PAP Phase 3 study into the U.S. The expanded study requires more patients, extending enrollment completion and expected approval timing by about two calendar quarters. The filing anticipated top-line Phase 3 results in Q2 2019.
- Molgradex also entered Phase 2a development for NTM in early 2018. AeroVanc’s Phase 3 study began in the U.S. and Canada in Q3 2017.
- Management expected R&D and other expenses, and operating losses, to increase as development advances. It stated that existing capital resources were expected to fund planned operations into 2020, while also saying additional capital would be needed; financing availability and terms are uncertain. Equity financing could dilute shareholders, and debt or partnerships could impose restrictions or require rights concessions.
- Key execution risks include clinical-trial failure or delay, patient enrollment, regulatory approval, manufacturing scale-up and supply reliability, and the need for additional capital. Molgradex manufacturing was being transferred to a new site, which could require additional studies or delay approval.
- Molgradex manufacturing commitments include up to $11.2 million of contingent milestones, none met as of March 31, 2018, plus potential sales royalties. Separately, contingent consideration related to Molgradex acquisition milestones was valued at $11.8 million.
- The company reported no material pending litigation and concluded disclosure controls were effective as of March 31, 2018.
Important facts for investors to verify
- Whether Molgradex PAP enrollment and the anticipated Q2 2019 top-line-results timeline remain on track after the study expansion.
- Progress and outcomes for the AeroVanc Phase 3 and Molgradex NTM Phase 2a trials, including enrollment, safety, and regulatory milestones.
- Cash burn relative to the $85.0 million of cash and short-term investments, and whether the stated runway into 2020 remains achievable without financing.
- Any changes to the Molgradex manufacturing transfer, regulatory requirements, or the contingent milestone and royalty obligations.
- Debt terms and covenant compliance, including the floating interest rate and scheduled repayment commencement.