Armata Pharmaceuticals, Inc. — Q1 2020 Form 10-Q
Reporting period: Three months ended March 31, 2020. Armata is a clinical-stage biotechnology company developing bacteriophage therapies for antibiotic-resistant infections. It reported no product revenue; margins are not applicable. The 2019 comparative period reflects C3J as accounting acquirer, before the May 2019 merger with AmpliPhi.
Key financial metrics
| Metric | Q1 2020 | Q1 2019 / prior date |
|---|---|---|
| Research and development expense | $2.75 million | $2.06 million |
| General and administrative expense | $2.17 million | $1.38 million |
| Operating loss | $4.92 million | $3.44 million |
| Net loss | $5.08 million | $3.74 million |
| Basic and diluted loss per share | $0.49 | $0.80 |
| Cash used in operating activities | $4.23 million | $2.46 million |
| Cash and cash equivalents at period-end | $24.21 million | $6.03 million at Dec. 31, 2019 |
| Total assets / total liabilities | $44.10 million / $10.62 million | $25.45 million / $10.86 million at Dec. 31, 2019 |
Cash, cash equivalents and restricted cash totaled $24.81 million at March 31. Financing activities provided $22.41 million, principally from the Innoviva private placement; investing activities used $0.10 million. The company had an accumulated deficit of $162.60 million and continued to incur negative operating cash flows. The filing reports no conventional borrowings at March 31; a $717,000 Paycheck Protection Program loan was received in April, after quarter-end.
Changes versus the comparable period
- Net loss rose $1.34 million, as R&D expense increased $0.69 million and G&A expense increased $0.79 million. Higher stock-based compensation was a key contributor to both increases.
- Operating cash use increased $1.77 million year over year.
- Loss per share improved to $0.49 from $0.80, while weighted-average shares increased to 10.45 million from 4.65 million.
- Cash increased substantially from year-end following the Innoviva financing, which generated $25.0 million gross proceeds for 8.71 million shares and warrants to purchase a further 8.71 million shares at $2.87 each. Quarter-end common shares outstanding were 18.64 million.
Outlook, risks and unusual items
- Management estimated that March 31 cash resources would fund planned operations into the second quarter of 2021. Nevertheless, recurring losses and negative operating cash flows raised substantial doubt about the company’s ability to continue as a going concern; further financing is needed and is not assured.
- Armata expected to initiate a Phase 1b/2 trial of AP-PA02 for Pseudomonas aeruginosa infections in cystic fibrosis patients during 2020, subject to COVID-19 conditions and trial enrollment. The previously anticipated first-half 2020 start was contingent on the pandemic easing. For AP-SA02, management expected an IND filing and Phase 1/2 trial in the second half of 2020 or first half of 2021, depending on financing and COVID-19 impacts.
- The company stated it could not estimate COVID-19’s full-year financial impact. Potential effects include delayed trials or enrollment, and disruption to research, manufacturing, suppliers and financing access. Management expected continued significant operating losses and no near-term product revenue.
- Innoviva held approximately 46.7% of shares and voting power after the placement; exercise of its warrants could raise its ownership to approximately 63.7%, according to the filing. The warrants and other equity awards also create potential dilution.
- The Cystic Fibrosis Foundation awarded up to $5.0 million toward AP-PA02 development. Payments are milestone-based; amounts received or receivable before eligible spending are recorded as a liability. Commercialization may trigger royalties and other payments, while a prolonged development interruption could require repayment or licensing rights to CFF.
- In April, Armata extended its Marina del Rey lease for 2022–2031, with annual base rent of approximately $1.9 million in 2022, rising 3% annually to $2.5 million by the term’s end. It also received six months of rent abatement starting May 2020 and a $0.8 million tenant-improvement allowance.
- The company reported no material off-balance-sheet arrangements and no legal proceedings expected by management to have a material adverse effect. The filing identifies potential future SGI asset-acquisition milestone payments of up to $39.5 million, subject to development and regulatory milestones.
Important facts for investors to verify
- Whether cash use, trial spending and financing availability remain consistent with management’s stated runway into Q2 2021, given the going-concern uncertainty.
- COVID-19’s actual effect on AP-PA02 trial initiation and enrollment, and on the AP-SA02 development timeline.
- The terms, timing and likelihood of further financing, including potential dilution and Innoviva’s voting influence.
- Progress against CFF award milestones, related spending and liabilities, and any resulting royalty, repayment or licensing obligations.
- Future cash commitments under the extended lease and any SGI acquisition payments, including contingent milestones.