Savara Inc. — Q2 2020 Form 10-Q
Reporting period: Three and six months ended June 30, 2020. Savara is a clinical-stage orphan lung disease company; it had no product revenue and had not begun commercial operations.
Key financial results
| Metric | Q2 2020 | Q2 2019 | Six months 2020 | Six months 2019 |
|---|---|---|---|---|
| Revenue | No product revenue | No product revenue | No product revenue | No product revenue |
| Research and development expense | $6.1 million | $10.5 million | $19.3 million | $20.5 million |
| General and administrative expense | $3.1 million | $4.2 million | $6.1 million | $7.0 million |
| Net loss | $9.4 million | $21.9 million | $24.8 million | $34.1 million |
| Basic and diluted loss per share | $0.16 | $0.57 | $0.43 | $0.91 |
| Operating cash used | Not presented quarterly | Not presented quarterly | $20.8 million | $23.8 million |
At June 30, 2020, cash and cash equivalents were $47.1 million and short-term investments were $52.5 million, totaling approximately $99.6 million. Working capital was approximately $96 million. Total liabilities were $31.3 million, including a debt-facility carrying value of $24.9 million; gross loan principal was $25 million. Accumulated deficit was $232.7 million. Gross profit and operating margins are not meaningful because Savara had no product sales.
Changes versus the prior comparable period
- Q2 net loss narrowed by $12.6 million; six-month net loss narrowed by $9.2 million. The prior-year periods included a $7.4 million goodwill impairment charge, while 2020 did not.
- Q2 R&D expense declined 41.9%, mainly as AeroVanc enrollment ended and IMPALA Phase 3 activities for Molgradex concluded, with work shifting toward a further study. For the first half, lower spending on those programs was partly offset by $5.4 million of Apulmiq license-related R&D expense.
- Six-month operating cash use improved by $2.9 million. Cash and cash equivalents declined $2.7 million during the half, while short-term investments declined from $72.0 million at year-end to $52.5 million.
- During the first half, Savara issued 942,825 shares through its at-the-market program for net proceeds of $2.3 million and issued one million shares to Grifols as part of the Apulmiq license consideration.
Outlook, developments, and risks
- Pipeline: Molgradex was in Phase 3 development for autoimmune pulmonary alveolar proteinosis (aPAP) and Phase 2a development for NTM lung infection. Apulmiq was in Phase 3 development for non-CF bronchiectasis (NCFB); AeroVanc was in Phase 3 development for persistent MRSA lung infection in people with CF.
- Molgradex: The prior IMPALA Phase 3 study did not meet its primary endpoint; the FDA had said the submitted data did not provide sufficient evidence of efficacy and safety. Savara planned the 160-patient IMPALA 2 study, expected to start in Q1 2021, with a 48-week placebo-controlled period and DLCO as the primary endpoint. The FDA had granted Breakthrough Therapy designation.
- Clinical disruption: Due to COVID-19, enrollment ended in the AeroVanc AVAIL Phase 3 study and Molgradex ENCORE Phase 2a study in CF patients. Top-line AVAIL results were expected in early 2021. COVID-19 could also affect trial recruitment, suppliers, manufacturing, and development schedules.
- Apulmiq: The worldwide Grifols license became effective March 31, 2020. Savara paid approximately $3.2 million in cash and issued one million shares; the filing records approximately $5.4 million of total upfront consideration as R&D expense. The company planned discussions with the FDA on a new Phase 3 study following the prior developer’s complete response letter. The license also includes up to $50 million in development milestones, up to $100 million in sales milestones, and tiered royalties; contingent payments were not recorded as liabilities because they were not considered probable or reasonably estimable.
- Liquidity and financing: Management expects significant future R&D and operating costs and says additional capital will be needed. Funding may come from equity, debt, grants, or partnerships; availability and terms are uncertain. The SVB facility’s interest-only period runs through June 30, 2022, subject to a condition requiring an ongoing qualifying Molgradex aPAP Phase 3 or Phase 4 trial with its first patient dosed by March 31, 2021. Otherwise, monthly principal and interest payments begin April 1, 2021. A separate covenant requires evidence by June 30, 2021 of at least $25 million in gross cash proceeds from warrant exercises or other equity issuance.
- Other items: The filing lists $160.3 million of unaccrued contingent manufacturing, development, and other milestone commitments, payable only upon specified events. A Japanese Molgradex licensee notified Savara of its intent to terminate; the agreement was to terminate August 21, 2020, when Savara expected to recognize the related milestone payment. Management reported effective disclosure controls and no material pending litigation.
Key facts for investors to verify
- Whether the planned IMPALA 2 study began on schedule, its design and enrollment progress, and the implications of the prior IMPALA results and FDA feedback.
- Whether AVAIL results were delivered as expected, and how COVID-19 affected ongoing trials, supply, and timelines.
- FDA feedback and funding plans for Apulmiq’s required additional Phase 3 study, including the cost and implications of Grifols’ milestone and royalty terms.
- Available liquidity, subsequent financing and dilution, and compliance with the SVB trial and equity-proceeds covenants.
- Potential impairment of the $11.2 million in-process R&D asset and the status of the $160.3 million in contingent commitments.