Armata Pharmaceuticals, Inc. annual report, FY2021

Armata Pharmaceuticals, Inc. — 2021 Form 10-K

Reporting period: Fiscal year ended December 31, 2021. Filed March 17, 2022. Armata is a clinical-stage biotechnology company developing bacteriophage therapies for antibiotic-resistant and difficult-to-treat bacterial infections; it has not generated product-sale revenue.

Financial performance and liquidity

Metric	2021	2020
Grant revenue	$4.47 million	$0.82 million
Research and development expense	$20.02 million	$14.44 million
General and administrative expense	$8.28 million	$7.97 million
Loss from operations	$23.82 million	$21.59 million
Net loss	$23.16 million	$22.18 million
Basic and diluted loss per share	$0.96	$1.35
Net cash used in operating activities	$23.58 million	$18.27 million

Grant revenue primarily reflects DoD/MTEC reimbursement of eligible AP-SA02 program costs, not customer sales. Gross margin is not meaningful for this development-stage company. R&D expense rose mainly with clinical-trial, contracted research, laboratory and personnel costs; CFF award credits and an Australian tax rebate partly offset the increase. Lower loss per share reflects a larger weighted-average share count, not improved net income.

• Year-end liquidity: Cash and cash equivalents were $10.29 million, versus $9.65 million a year earlier; restricted cash was an additional $1.20 million. Working capital was $10.18 million, up from $4.14 million.
• Balance sheet: Total assets were $69.77 million and total liabilities were $44.37 million. Operating lease liabilities were $37.99 million ($1.51 million current); liabilities therefore largely reflect leases rather than conventional borrowings. The $717,000 PPP loan was forgiven in July 2021. The final $2.0 million scheduled payment on the Synthetic Genomics asset acquisition was made in 2021.
• Cash flows and funding: Investing activities used $1.30 million; financing activities provided $25.52 million, largely from private placements. The company reported an accumulated deficit of $202.86 million and recurring operating losses and negative operating cash flows.

Material changes and business developments

• Grant revenue increased by $3.65 million year over year; R&D expense increased by $5.57 million, while G&A remained broadly stable. Operating loss widened by $2.24 million. Operating cash use increased by $5.31 million.
• Armata raised approximately $19.3 million net in the January 2021 Innoviva private placement and approximately $6.9 million net in October 2021 placements with Innoviva and the Cystic Fibrosis Foundation (CFF). Common shares outstanding increased to 27.11 million at year-end from 18.69 million.
• In February 2022, Innoviva bought the first tranche of a further financing for approximately $18.1 million. A second tranche of approximately $26.9 million, part of a transaction expected to provide $45 million gross in total, remained subject to stockholder approval and other closing conditions at the time described in the filing.
• Armata entered a non-cancellable lease for approximately 56,000 square feet of Los Angeles office and R&D space, with a 16-year term through 2038. Base rent is expected to be approximately $250,000 monthly in 2024; the company is eligible for up to $7.3 million in tenant-improvement allowance. The filing lists $74.29 million of future minimum lease payments across operating leases before discounting.

Outlook, commentary and risks

• Management stated that year-end resources plus expected proceeds from the February 2022 financing’s second tranche were expected to fund planned operations into the first quarter of 2023. The auditor and company disclosed substantial doubt about the company’s ability to continue as a going concern; the financing plan was not wholly within management’s control and was not considered probable for purposes of resolving that doubt.
• AP-PA02 was in a Phase 1b/2a inhaled study for cystic fibrosis-associated chronic P. aeruginosa infection; topline data were anticipated in 2022. FDA cleared AP-SA02’s IND in November 2021 for the Phase 1b/2a diSArm study in S. aureus bacteremia, partially supported by a DoD/MTEC award of up to $15 million. Both programs remained exposed to enrollment and execution risks.
• After year-end, FDA cleared AP-PA02’s IND for a non-cystic fibrosis bronchiectasis indication; Armata planned to start a Phase 2 trial in 2022. A regulatory filing for AP-PA03 in hospitalized pneumonia was expected in 2022 or 2023.
• COVID-19 protocols delayed trial site identification and initiation in 2021. Management said those delays had not materially harmed 2021 results, but could not estimate the pandemic’s 2022 effects on operations, liquidity, enrollment or supply availability.
• Principal risks include continued financing needs and dilution, clinical and regulatory uncertainty for a novel therapy class with no approved phage products, manufacturing and cGMP execution, third-party and trial-site dependence, and the long-term lease/buildout. Innoviva’s financing and ownership position may give it substantial influence; the filing described anticipated ownership of approximately 70% after both February 2022 tranches close.

The company reported no material legal proceedings. The financial statements received an unqualified audit opinion; management concluded disclosure controls and internal control over financial reporting were effective as of December 31, 2021. The auditor was not engaged to attest to internal control effectiveness.

Important facts for investors to verify

1. Whether the February 2022 financing’s second tranche closed, its net proceeds, and resulting dilution and Innoviva ownership.
2. Current cash, burn rate and runway versus management’s conditional first-quarter-2023 estimate, especially in light of the going-concern qualification.
3. AP-PA02 and AP-SA02 trial enrollment, timing and reported safety, efficacy and other data; whether the planned NCFB Phase 2 trial began.
4. Actual costs, timing, tenant-improvement reimbursement and occupancy for the new facility, alongside the company’s long-term lease obligations.
5. Availability and timing of MTEC and CFF support, including reimbursement terms, milestone requirements and any resulting royalties or other payments.