Savara Inc annual report, FY2013

Business context and reporting period

The supplied filing is Mast Therapeutics, Inc.’s Form 10-K for the fiscal year ended December 31, 2013, filed March 26, 2014. It does not identify Savara Inc. as the registrant, and it reports an annual period rather than a separate 2013 fourth-quarter filing.

Mast was a development-stage biopharmaceutical company with no product sales. Its lead candidate, MST-188, was in a pivotal Phase 3 sickle-cell study; the company acquired Aires Pharmaceuticals in February 2014, adding AIR001 to its pipeline.

Financial performance and position

At December 31, 2013, current assets were $45.5 million, current liabilities $4.8 million, and net working capital $40.7 million. Total liabilities were $7.4 million, including a $2.6 million deferred tax liability; the filing does not report outstanding borrowings. Gross margin is not meaningful because there were no 2013 or 2012 sales.

Material changes versus prior year

• Net loss increased by $5.9 million, while R&D expense rose 59.5%, mainly due to EPIC and the MST-188 QT/QTc study. Clinical-study expenses increased by $6.2 million; lower nonclinical expenses partly offset the increase.
• Operating cash use increased by $3.9 million. Cash, cash equivalents and investment securities rose by $7.9 million, supported by a June 2013 equity offering that generated $25.7 million net.
• Common shares outstanding increased substantially following the 2013 offering. The company also had 44.6 million warrants outstanding at year-end, including 28.1 million exercisable at $0.65 per share.
• The February 2014 Aires acquisition occurred after year-end and was not reflected in the December 31, 2013 balance sheet. Consideration was up to 5.25 million shares, subject to a six-month holdback for most shares.

Outlook, commentary and key risks

• Management expected year-end resources to fund the then-planned operating level for at least 12 months, but said additional capital would be needed to support development through commercialization. It expected significant losses to continue and R&D expenses to increase significantly in 2014.
• Management targeted EPIC enrollment completion by the end of 2015 and estimated about $16 million in external clinical-study costs through completion. A Phase 2 acute limb ischemia study was initiated in March 2014, with estimated external costs of about $4 million and an approximately 18-month enrollment period.
• Management planned to pursue a heart-failure Phase 2 study subject to FDA feedback and intended to refine AIR001’s development strategy. AIR001 program costs over the 12 months following acquisition were initially estimated at about $2 million.
• Key risks include clinical efficacy or safety failure, regulatory delays, reliance on single-source manufacturers and other contractors, and the need to raise additional capital on acceptable terms. Equity financing could dilute shareholders; the filing also highlights potential listing-standard and stock-price risks.
• Prior-sponsor Phase 3 sickle-cell results showed an 8-hour reduction in crisis duration that was not statistically significant in the overall population; favorable subgroup and responder analyses were post hoc. The current pivotal trial’s outcome remains uncertain.
• The filing reports no material pending litigation, an unqualified auditor opinion, and management’s conclusion that disclosure controls and internal control over financial reporting were effective at year-end.

Important facts for investors to verify

• Confirm the issuer and period: the supplied document is Mast Therapeutics’ FY2013 10-K, not a Savara filing or a standalone Q4 report.
• Track EPIC enrollment, trial completion, endpoint results, and any FDA feedback or additional-study requirements.
• Assess cash burn against available liquidity and planned 2014 program costs; verify subsequent financing and dilution, including the ATM program.
• Review the full warrant, option, and acquisition-share overhang, including milestone shares potentially due under the SynthRx agreement.
• Evaluate manufacturing continuity and whether regulatory requirements could necessitate new suppliers, additional studies, or added expense.