Armata Pharmaceuticals, Inc. — Q3 2020 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2020. Armata is a clinical-stage biotechnology company developing bacteriophage therapies for bacterial infections. It reported no product-sales revenue; reported revenue was grant-related.
Financial performance
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Grant revenue | $288,000 | — | $319,000 | — |
| Research and development | $4.066 million | $3.019 million | $9.464 million | $8.156 million |
| General and administrative | $1.845 million | $3.758 million | $5.989 million | $7.220 million |
| Operating loss | $5.623 million | $6.777 million | $15.134 million | $15.376 million |
| Net loss | $5.769 million | $6.955 million | $15.557 million | $14.893 million |
| Net loss per share, basic | $0.31 | $0.73 | $0.99 | $2.05 |
- Q3 R&D rose $1.1 million year over year, mainly reflecting AP-PA02 trial preparation, clinical research costs, and higher payroll. Nine-month R&D increased $1.3 million; the comparison included a $1.0 million Cystic Fibrosis Foundation (CFF) award credit in 2020.
- G&A declined year over year, primarily because 2019 included accelerated restricted-stock compensation and merger-related professional fees.
- Interest expense was $150,000 in Q3 and $451,000 for the nine months. The 2019 nine-month comparison included a $1.117 million gain from the change in fair value of an acquisition-related derivative.
- Operating margins are not meaningful for this pre-commercial company. Accumulated deficit was $173.1 million at September 30, 2020.
Cash, liquidity, and capital
- Cash and cash equivalents were $15.885 million at September 30, 2020, versus $6.033 million at December 31, 2019; restricted cash was an additional $1.2 million. Total assets were $45.675 million and total liabilities were $21.056 million.
- Nine-month operating cash use was $11.968 million, compared with $12.853 million in 2019. Investing cash use was $458,000. Financing provided $22.778 million, primarily from the Innoviva private placement.
- The March 2020 private placement raised $25.0 million gross and $22.9 million net, issuing 8.71 million shares and warrants for an additional 8.71 million shares at $2.87 per share. Shares outstanding rose to 18.669 million from 9.923 million at year-end 2019.
- The company received a $717,000 Paycheck Protection Program loan at 1% interest; the balance-sheet amount was $720,000. Forgiveness was not assured. Any unforgiven amount is payable over two years after the deferral period.
- Operating lease liabilities totaled $12.315 million. An April 2020 lease amendment extended the Marina del Rey facility lease through December 2031.
- Management said current resources were expected to fund planned operations through the first half of 2021, but stated that recurring losses and negative operating cash flows raise substantial doubt about the company’s ability to continue as a going concern. Additional capital will be required.
Developments, outlook, and risks
- On October 14, 2020, after quarter-end, FDA cleared the IND for AP-PA02. Armata planned to begin the SWARM-P.a. Phase 1b/2a study in cystic fibrosis patients with chronic Pseudomonas infection by year-end, subject to COVID-19 impacts.
- A CFF award of up to $5.0 million supports AP-PA02 development. A $1.0 million payment was received and recognized as an R&D credit as qualifying expenses were incurred; further payments depend on milestones. The agreement includes repayment or licensing provisions in specified interruption circumstances and royalties upon commercialization.
- A three-year MTEC agreement provides a $15.0 million cost-reimbursement grant for AP-SA02 development. Armata recognized $319,000 of grant revenue for the nine months. Future payments depend on incurred eligible costs; commercialization or licensing can trigger fees.
- Management expected AP-SA02 clinical evaluation in 2021, conditional on COVID-19 conditions permitting patient enrollment. The company also described a synthetic-phage collaboration with Merck for undisclosed infectious-disease targets.
- COVID-19 had delayed clinical-site initiation and created potential risks to enrollment, laboratory work, and supplies. The company could not estimate the pandemic’s effects on 2020 or 2021 results or liquidity.
- Key risks include funding availability and dilution, clinical and regulatory uncertainty, novel phage technology and manufacturing challenges, dependence on third parties, and potential delays from COVID-19. Innoviva held approximately 46.7% of outstanding shares and could hold approximately 63.7% if it exercised its warrants.
- The filing reported no off-balance-sheet arrangements and no legal proceedings expected by management to have a material adverse effect. Disclosure controls were assessed as effective at the reasonable-assurance level.
Most important facts for investors to verify
- Whether cash burn and available funding remain consistent with the stated runway through the first half of 2021, and the timing and terms of additional financing.
- Progress, enrollment, and safety milestones for AP-PA02 and AP-SA02, including the effects of COVID-19 and the October 2020 FDA clearance.
- Receipt and eligible use of MTEC and CFF funding, milestone conditions, and any contingent royalties, repayment, or licensing obligations.
- PPP loan forgiveness status and the amount, if any, that must be repaid.
- Potential dilution and governance implications of Innoviva’s ownership and warrants, as well as future equity needs.
- Lease obligations and the $2.0 million SGI asset-acquisition payment due in January 2021, as described in the amended payment schedule.