Savara Inc. — Q3 2017 Form 10-Q
Reporting period: Three and nine months ended September 30, 2017. Financial statements are unaudited. Savara completed its merger with Mast Therapeutics on April 27, 2017; the merger was accounted for as a reverse acquisition, so the historical financial statements primarily reflect Savara’s operations before the merger. Comparisons with 2016 therefore do not represent a fully like-for-like period for the combined public company.
Business context
Savara is a clinical-stage orphan lung disease company with no material product revenue and no commercial operations. Its pipeline comprises Molgradex (Phase 3 for pulmonary alveolar proteinosis, or PAP), AeroVanc (Phase 3 for persistent MRSA lung infection in cystic fibrosis) and Aironite (Phase 2 for heart failure with preserved ejection fraction). The company also planned a Phase 2a Molgradex study for nontuberculous mycobacterial (NTM) lung infection.
Financial performance and liquidity
| Metric | Q3 2017 | Q3 2016 | Nine months 2017 | Nine months 2016 |
|---|---|---|---|---|
| Revenue | $0 | $0 | $0 | $0 |
| Research and development expense | $5.0m | $2.1m | $12.1m | $4.7m |
| General and administrative expense | $1.5m | $1.0m | $8.4m | $2.0m |
| Net loss | $6.8m | $3.2m | $23.3m | $7.0m |
| Net loss per share, basic and diluted | $0.28 | $1.21 | $1.76 | $4.40 |
| Operating cash used | Not provided for quarter | Not provided for quarter | $18.8m | $6.2m |
At September 30, 2017, cash and cash equivalents were $19.8m and short-term investments were $33.5m, totaling $53.3m; working capital was $49.4m. The company reported an accumulated deficit of $61.7m. Total assets were $118.9m and total liabilities were $44.2m. The balance sheet carried $14.7m of long-term debt-facility obligations, net of issuance costs and warrant discount; the facility’s principal and end-of-term charge were reported as $15.1m. Gross margins are not meaningful because Savara had no product sales.
Nine-month cash flows included $55.3m provided by financing, primarily the $39.5m net public offering proceeds, debt-facility proceeds and ATM sales. Investing activities used $30.1m, mainly for purchases of short-term securities, partly offset by cash acquired in the merger. Cash increased by $6.4m during the period.
Material changes versus the prior comparable period
- Nine-month R&D expense increased $7.4m, primarily from Molgradex development, AeroVanc Phase 3 and manufacturing costs, and Aironite development.
- Nine-month G&A expense increased $6.5m, including a $2.1m increase in the fair value of Serendex contingent consideration, approximately $2.6m of merger and financing costs, and added public-company and personnel costs.
- Other expense increased $3.3m for the nine months, including $1.8m of debt-extinguishment loss, higher interest expense and changes in fair value of financial instruments.
- Cash and investments rose substantially from year-end 2016, supported by equity and debt financing. The merger also added Aironite and substantially increased reported goodwill and in-process R&D.
Outlook, risks and unusual items
- Management expected R&D and G&A spending and operating losses to increase as clinical programs advance, with losses likely for at least several years. The filing states that development and regulatory plans require substantial additional capital and that financing may not be available on acceptable terms.
- The filing’s risk discussion said existing capital resources were believed sufficient to fund planned operations into 2020. Subsequent to quarter-end, Savara completed an October/November 2017 public offering with approximately $50m in net proceeds; the company said proceeds would support clinical development, regulatory work and general corporate purposes.
- Management expected top-line results from the Molgradex Phase 3 study in Q4 2018. AeroVanc Phase 3 had recently started in the U.S. and Canada. The company planned to initiate an NTM Phase 2a study in early 2018.
- The $15m Silicon Valley Bank facility bears interest at prime plus 4.25%, has interest-only payments through March 2019, and matures March 1, 2021. It includes restrictive covenants and a 6% end-of-term payment.
- Molgradex carries contingent consideration tied to regulatory milestones; the liability was valued at $11.8m at quarter-end. Additional potential Molgradex obligations include API-manufacturer milestones of up to $2.6m, nebulizer milestones of up to approximately €7m, and royalties. AeroVanc also has contingent Cystic Fibrosis Foundation payments upon approval and sales thresholds.
- Key risks include clinical-trial failure or delay, regulatory uncertainty, dependence on third-party manufacturers and CROs, Molgradex manufacturing transfer, limited patent protection for some programs, financing needs, dilution, and debt-covenant compliance. The company reported no material pending litigation and stated disclosure controls were effective.
Important facts for investors to verify
- Progress, enrollment, regulatory requirements and expected timing for Molgradex Phase 3 results, AeroVanc Phase 3, and the planned NTM study.
- Cash runway and quarterly cash consumption after incorporating the post-quarter offering, expected development spending and debt service.
- Molgradex manufacturing-transfer status and whether additional studies, costs or regulatory delays arise.
- Terms and potential impact of the SVB loan covenants, contingent consideration, milestone obligations and royalties.
- Potential dilution from the October/November offering, outstanding warrants and options, and expiration of shareholder lock-ups.