Savara Inc. — Form 10-Q Summary
Reporting period: Quarter and nine months ended September 30, 2018. Financial statements are unaudited. Savara is a clinical-stage orphan lung disease company with no product revenue or commercial operations.
Business context
The pipeline comprised Molgradex, in Phase 3 for autoimmune pulmonary alveolar proteinosis (aPAP) and Phase 2a for nontuberculous mycobacterial (NTM) lung infection, and AeroVanc, in Phase 3 for persistent MRSA lung infection in people with cystic fibrosis. The company also planned a Molgradex study in cystic fibrosis patients with chronic NTM infection.
Financial performance and liquidity
| Metric | Q3 2018 | Q3 2017 | Nine months 2018 | Nine months 2017 |
|---|---|---|---|---|
| Revenue | No product revenue | No product revenue | No product revenue | No product revenue |
| Research and development expense | $9.5m | $5.0m | $27.3m | $12.1m |
| General and administrative expense | $3.1m | $1.5m | $7.4m | $8.4m |
| Impairment of acquired IPR&D | — | — | $21.7m | — |
| Net loss | $12.6m | $6.8m | $51.0m | $23.3m |
| Net loss per share, basic and diluted | $0.37 | $0.28 | $1.61 | $1.76 |
| Cash used in operating activities | Not separately stated | Not separately stated | $28.8m | $18.8m |
At September 30, 2018, cash and cash equivalents were $24.9m and short-term investments were $87.1m, totaling $112.0m. Working capital was $103.5m. Total assets were $155.1m; total liabilities were $37.3m. Debt-facility carrying value was $15.1m, including $3.75m current and $11.36m long-term; gross principal was $15.0m. No profit or operating margin is meaningful because Savara had no product revenue.
Operating cash outflow increased from the prior-year period. Investing activities used $14.5m, primarily reflecting net purchases of short-term investments; financing activities provided $46.1m, mainly from the July equity offering. Cash increased $2.8m during the nine months.
Material changes versus comparable periods
- Q3 R&D expense rose 91.5% year over year, driven by Phase 3 AeroVanc activity and expanded Molgradex aPAP work and the NTM study.
- Nine-month R&D expense more than doubled, reflecting increased Molgradex and AeroVanc development spending and $1.0m of Cardeas asset-purchase shares expensed.
- Nine-month net loss included a $21.7m noncash impairment of Aironite IPR&D. Savara discontinued Aironite after its Phase 2 study failed to meet endpoints and showed limited effectiveness.
- Net loss also reflected higher development spending; the $5.9m nine-month income tax benefit included a $4.6m benefit from reversing the deferred tax liability related to the Aironite impairment.
- In July, Savara raised $45.8m net through an offering of 4.25m common shares. Outstanding shares increased to 35.1m from 30.5m at year-end 2017.
Outlook, risks, and unusual items
- Management expected R&D and G&A expenses and operating losses to increase as clinical programs advance. The company reported that existing capital resources were expected to fund planned operations into 2020, but also said additional capital would be required; the timing and sufficiency of future financing are uncertain.
- Management expected Molgradex aPAP Phase 3 top-line results in Q2 2019 and AeroVanc Phase 3 results in late 2019. These are expectations, not guarantees.
- The FDA expansion of the Molgradex aPAP Phase 3 study increased its sample size and extended enrollment and anticipated approval timing by approximately two quarters. Further study or manufacturing requirements could delay approval.
- Debt bears interest at the Wall Street Journal prime rate plus 4.25%; principal repayments were scheduled to begin after the interest-only period ending March 2019. The loan includes restrictive covenants.
- Potential Molgradex manufacturing, nebulizer and Japanese co-development milestone commitments totaled $11.4m, none of which had been triggered at September 30, 2018. Serendex contingent consideration was recorded at $12.1m.
- Key risks include clinical-trial failure or delay, regulatory and manufacturing hurdles, dependence on third-party manufacturers and service providers, need for additional financing and potential shareholder dilution. The company reported no material pending litigation, no material off-balance-sheet arrangements, and effective disclosure controls.
Important facts for investors to verify
- Whether Molgradex and AeroVanc trials remain on schedule and whether the stated expected data dates have changed.
- Whether the company’s reported funding runway into 2020 remains valid given operating cash use, program costs, and financing needs.
- Any further equity sales under the ATM program, their proceeds, and resulting dilution.
- Debt repayment and covenant status, including the effect of floating interest rates.
- Progress on manufacturing, regulatory requirements, and potential milestone obligations, particularly for Molgradex.
- Any new clinical, regulatory, or impairment developments affecting the pipeline or remaining goodwill and IPR&D.