Savara Inc. — Q1 2019 Form 10-Q
Reporting period: Three months ended March 31, 2019; unaudited. Savara is a clinical-stage orphan lung disease company with no product revenue or commercial operations. Its lead programs are Molgradex and AeroVanc.
Financial results and liquidity
| Metric | Q1 2019 | Q1 2018 |
|---|---|---|
| Product revenue | None | None |
| Research and development expense | $10.0 million | $8.5 million |
| General and administrative expense | $2.8 million | $1.8 million |
| Total operating expenses | $12.9 million | $32.1 million |
| Net loss | $12.1 million | $26.8 million |
| Net loss per share, basic and diluted | $0.34 | $0.86 |
| Net cash used in operating activities | $10.9 million | $9.7 million |
The smaller year-over-year net loss primarily reflects the absence of the $21.7 million acquired in-process R&D impairment recorded in Q1 2018. Q1 2018 also included a $4.6 million income tax benefit; Q1 2019 had none. Q1 2019 R&D expense rose 17%, mainly from higher Molgradex development costs and AeroVanc Phase 3 activity. G&A rose 56%, primarily on personnel and professional costs. Margins are not meaningful because the company has no product revenue.
At March 31, 2019, cash and cash equivalents were $25.7 million and short-term investments were $79.5 million, totaling $105.2 million; working capital was $98.6 million. Accumulated deficit was $141.8 million. Cash increased $1.4 million during the quarter, supported by $4.9 million of net proceeds from at-the-market stock sales and net investment cash inflows; operating cash use was $10.9 million.
Debt facility carrying value was $24.7 million, against $25.0 million gross principal. Interest is prime plus 3%; interest-only payments continue through October 2020, with principal payments thereafter and maturity in November 2022. A further $20 million tranche was available on request before September 30, 2019, subject to conditions; drawing it could require $20 million cash collateral if market capitalization falls below $200 million.
Material changes, outlook and risks
- Pipeline: Molgradex is in Phase 3 for autoimmune pulmonary alveolar proteinosis (aPAP) and Phase 2a for nontuberculous mycobacterial (NTM) lung infection, including in people with cystic fibrosis. AeroVanc is in Phase 3 for persistent MRSA lung infection in people with cystic fibrosis.
- Savara initiated the ENCORE Phase 2a study of Molgradex for NTM infection in people with cystic fibrosis during Q1. Management expected top-line IMPALA Phase 3 Molgradex results in Q2 2019 and AeroVanc Phase 3 results in Q2 2020; these are stated expectations, not guarantees.
- Management expects significant further R&D and operating losses and says substantial additional capital will be needed. The risk-factor discussion states existing resources were expected to fund planned operations into 2020; timing depends on development costs and results, and financing may not be available on acceptable terms.
- On April 26, 2019, after quarter-end, Savara entered a new Molgradex API supply agreement providing for up to $5.0 million in milestone payments and low-single-digit royalties on sales. The company recorded approximately $1.4 million of Q1 R&D expense and accrued liability for milestone-related activity whose conditions existed during the quarter.
- Other material exposures include clinical-trial and regulatory failure or delay, dependence on third-party manufacturers and CROs, limited product patent protection for Molgradex aPAP, future financing and equity dilution, and contingent milestone payments. The company reported no material pending litigation and no off-balance-sheet arrangements.
Key facts for investors to verify
- Whether IMPALA results and subsequent regulatory discussions support the expected Molgradex aPAP development timeline, and whether additional studies are required.
- Clinical progress, enrollment, safety and timing for AeroVanc and the Molgradex NTM programs, including ENCORE.
- Cash burn, investment availability, financing plans and whether the company’s stated funding horizon remains achievable.
- Conditions for drawing the remaining $20 million loan tranche, potential collateral requirements, and compliance with lender covenants.
- Accruals and future cash obligations under the new API supply agreement, and the probability and timing of other milestone payments and royalties.
- Potential dilution from further at-the-market sales and equity awards; common shares outstanding were 35.8 million at March 31 and 37.7 million at May 9, 2019.