Savara Inc. — FY2019 Form 10-K
Reporting period: Fiscal year ended December 31, 2019; the filing also provides unaudited quarterly results. Filed March 12, 2020. Savara is a clinical-stage orphan lung disease company with no product sales.
Business context and pipeline
- Molgradex: inhaled GM-CSF in Phase 3 development for autoimmune pulmonary alveolar proteinosis (aPAP), and Phase 2a development for nontuberculous mycobacterial (NTM) lung infection, including in people with cystic fibrosis (CF).
- AeroVanc: inhaled vancomycin in a Phase 3 study for persistent MRSA lung infection in people with CF.
Financial performance and liquidity
| Metric | FY2019 | FY2018 |
|---|---|---|
| Revenue | $0 | $0 |
| Research and development expense | $38.8 million | $37.2 million |
| General and administrative expense | $13.1 million | $10.7 million |
| Operating loss | $79.0 million | $70.0 million |
| Net loss | $78.2 million | $61.5 million |
| Net loss per share | $1.95 | $1.85 |
| Cash used in operating activities | $45.1 million | $39.3 million |
| Cash and cash equivalents | $49.8 million | $24.3 million |
| Short-term investments | $72.0 million | $86.5 million |
- Working capital was $113.2 million at year-end; accumulated deficit was $207.9 million. No meaningful operating margin is reported because the company had no product revenue and incurred operating losses.
- FY2019 financing cash flow was $54.9 million, primarily from $29.6 million of at-the-market stock sales and $25.2 million net proceeds from the December private placement. Investing activities provided $15.7 million, mainly from investment maturities and sales.
- Gross debt principal was $25.0 million at year-end. The loan is secured by a first-priority lien on company assets, bears variable interest, and includes restrictive covenants. The $20 million second tranche expired unused in September 2019.
- The filing states both that existing capital resources were expected to fund planned operations into 2022 and, in the financial-statement liquidity note, that cash and investments were sufficient for the twelve months after issuance of the statements. Additional capital is expected to be needed.
Material changes and unusual items
- Net loss rose $16.7 million year over year. Goodwill impairment charges were $26.9 million in 2019, including $19.4 million in Q4 and $7.4 million in Q2; goodwill was reduced to zero. FY2018 included a $21.7 million impairment of acquired in-process R&D.
- FY2019 quarterly net losses were $12.1 million, $21.9 million, $12.4 million, and $31.7 million, respectively. Q4 operating loss was $31.5 million.
- In December 2019, Savara issued common shares and pre-funded warrants for approximately $25.2 million net proceeds, plus milestone warrants exercisable for up to approximately $48.2 million. The warrants and stock sales create potential dilution; total common shares outstanding increased to 50.8 million at year-end from 35.1 million a year earlier.
- In May 2019, Savara settled a $12.5 million contingent acquisition obligation by issuing 1,105,216 shares.
Outlook, developments, and risks
- The Phase 3 IMPALA study of Molgradex for aPAP missed its primary oxygenation endpoint. The filing reports favorable results on certain secondary measures, including DLCO and respiratory quality-of-life scores, but the FDA said the submitted data did not provide sufficient evidence of efficacy and safety. Savara was working with regulators on an additional Phase 3 study; its scope, timing, cost, and likelihood of success were not established.
- FDA granted Molgradex Fast Track and Breakthrough Therapy designations in 2019. These designations may facilitate development or review but do not assure approval.
- In March 2020, after year-end, Savara reported that 5 of 24 MAC patients in the OPTIMA Phase 2a study achieved sputum culture conversion by week 48; none of the 8 MABSC patients converted. Fourteen of 32 participants experienced serious adverse events; three deaths were considered unlikely related to treatment.
- AVAIL enrollment was expected to continue through Q2 2020, with top-line results expected in early 2021. Enrollment had been slower than expected. The filing also identifies possible COVID-19-related disruption to trials, recruitment, suppliers, and manufacturing.
- In January 2020, SVB amended the loan, extending interest-only payments subject to conditions. The amendment includes a requirement to demonstrate at least $25 million in gross proceeds from warrant exercises or other equity by June 2021, and an earlier repayment trigger if a qualifying Molgradex Phase 3/4 trial has not dosed its first patient by March 2021.
- After year-end, the Cystic Fibrosis Foundation terminated the additional $5 million AeroVanc award; Savara retained the prior $1.7 million award and related contingent royalties. The Japanese Molgradex licensee gave notice of termination effective August 21, 2020.
- Key risks include clinical and regulatory failure or delay, further financing needs and dilution, debt covenants and repayment conditions, reliance on third-party manufacturers and clinical vendors, potential supply interruption, reimbursement uncertainty, and limited patent protection for Molgradex in aPAP. Savara reported no material pending litigation. The auditor gave an unqualified opinion, and management and the auditor reported effective internal controls over financial reporting.
Important facts for investors to verify
- Regulatory feedback, proposed design, funding, and timeline for another Molgradex aPAP Phase 3 study.
- AVAIL enrollment progress, the primary analysis population, and results expected in 2021.
- Cash runway assumptions and expected spending, particularly the difference between the stated “into 2022” plan and the liquidity note’s twelve-month sufficiency statement.
- Potential dilution from the 32.6 million milestone warrants and 5.8 million pre-funded warrants, including milestone conditions and actual exercises.
- Compliance with SVB’s equity-proceeds covenant and clinical-trial milestone, as well as debt service and covenant terms.
- Consequences of the CFF award termination and the Japanese license termination for potential royalties, development, and commercialization.