Savara Inc. — Q2 2017 Form 10-Q
Reporting period: Three and six months ended June 30, 2017. Amounts below are in U.S. dollars; financial statement figures are presented in millions unless stated otherwise. Savara is a clinical-stage specialty pharmaceutical company with no product revenue and one operating segment. The April 27 merger with Mast Therapeutics was accounted for as a reverse merger; reported historical operations are primarily Savara’s, with Mast included from the merger date.
Financial performance and position
| Metric | Q2 2017 | Q2 2016 | Six months 2017 | Six months 2016 |
|---|---|---|---|---|
| Revenue | $0 | $0 | $0 | $0 |
| Research and development expense | $4.2 | $1.3 | $7.1 | $2.6 |
| General and administrative expense | $5.1 | $0.6 | $6.9 | $1.0 |
| Operating loss | $(9.3) | $(2.0) | $(14.2) | $(3.7) |
| Net loss | $(11.5) | $(2.1) | $(16.5) | $(3.7) |
| Net loss per share, basic and diluted | $(0.90) | $(1.97) | $(2.06) | $(3.63) |
| Operating cash used | Not presented by quarter | Not presented by quarter | $(10.5) | $(3.3) |
With no revenue, operating margins are not meaningful. At June 30, cash and cash equivalents were $61.1 million, current assets were $63.7 million, current liabilities were $8.1 million, and working capital was approximately $55.5 million. Total assets were $125.8 million. The balance sheet reported a $14.6 million carrying value for the Silicon Valley Bank debt facility; its principal and end-of-term charge totaled approximately $15.0 million. The company also had $0.3 million of capital lease obligations. Accumulated deficit was $54.9 million.
Changes versus the comparable period
- Six-month net loss increased to $16.5 million from $3.7 million. R&D rose primarily with Molgradex development; Q2 R&D also reflected higher AeroVanc CMC costs.
- G&A rose substantially, including merger and financing costs, higher personnel and public-company expenses, and a $2.0 million increase in the fair value of Serendex contingent consideration during the half-year.
- Other expense included $1.8 million of debt-extinguishment losses following conversion of the 2016 and 2017 notes in the merger, as well as increased interest expense.
- Cash increased by $47.8 million from year-end, chiefly due to $39.5 million net proceeds from a public offering and $14.9 million of debt-facility proceeds, partly offset by operating cash use and debt repayment. The merger also added $3.4 million cash.
- Preferred stock and convertible notes converted into common stock in connection with the merger. Common shares outstanding were 24.2 million at June 30; the public offering and conversions substantially changed the share count.
Outlook, risks and unusual items
- Management expects R&D and G&A expenses and operating losses to increase as development advances, and says additional capital will be needed. The filing states existing capital resources are expected to fund operations into 2019, but this is not a guarantee; financing availability and terms remain uncertain.
- Development outlook disclosed: Molgradex Phase 3 was ongoing in Europe and Japan, with top-line results expected in Q4 2018. Following FDA guidance, Savara planned changes to the U.S. development program that it believed could accelerate the U.S. timeline, but specific statistical-plan details were not agreed. AeroVanc Phase 3 was scheduled to start in the U.S. and Canada in Q3 2017; Aironite was in Phase 2.
- Key risks include clinical failure or delay, regulatory requirements, patient enrollment in rare diseases, manufacturing and supply dependence, competition, and the need for further financing. The filing notes that AeroVanc requires a two-year nonclinical carcinogenicity study and that Molgradex manufacturing was being transferred to a new site.
- Goodwill and acquired in-process R&D totaled approximately $61.3 million, subject to impairment testing. Contingent consideration related to Molgradex was remeasured to $11.7 million, a Level 3 fair-value estimate sensitive to assumptions.
- Commitments include an approximately $2.0 million purchase of Molgradex cell banks expected in Q3 2017, potential Molgradex nebulizer milestones of up to approximately €7 million plus royalties, and a $0.5 million accrued settlement relating to a legacy clinical vendor. The filing also describes potential Cystic Fibrosis Foundation payments upon AeroVanc approval and sales thresholds.
- The SVB facility bears interest at prime plus 4.25%, matures March 1, 2021, and includes restrictive covenants and a 6% final payment on amounts advanced. Management reported disclosure controls were effective as of June 30, 2017; no material litigation was pending.
Important facts for investors to verify
- Current cash runway assumptions and the timing, amount, and terms of any additional financing.
- Molgradex FDA development requirements, agreed statistical analysis plan, manufacturing transfer progress, and Q4 2018 results timing.
- Whether AeroVanc Phase 3 began as scheduled, and the status and implications of its carcinogenicity study.
- Clinical-trial, regulatory, and manufacturing milestones for all three programs, including Aironite.
- Potential dilution from outstanding warrants, equity awards, future ATM or other offerings, and the timing of lock-up expirations.
- Debt covenant compliance, interest and final-payment burden, and the assumptions underlying the $11.7 million contingent-consideration liability and impairment-sensitive acquired assets.