Armata Pharmaceuticals, Inc. — 2019 Form 10-K
Reporting period: Fiscal year ended December 31, 2019. The filing was signed March 19, 2020. Armata is a clinical-stage biotechnology company developing bacteriophage therapies for antibiotic-resistant bacterial infections; it had no product revenue.
Business context and development
The May 2019 merger with C3J Therapeutics was accounted for as a reverse merger, with C3J the accounting acquirer. Consequently, 2019 results include Armata’s combined operations after the merger, while 2018 comparative results primarily reflect C3J and are not fully comparable.
- AP-PA02: Planned Phase 1b/2 study in cystic fibrosis patients with chronic pulmonary Pseudomonas aeruginosa infection, targeted for the first half of 2020.
- AP-SA02: Planned FDA filing and Phase 1b/2 study for Staphylococcus aureus bacteremia, targeted for the second half of 2020; development outside respiratory indications was contingent on third-party funding.
- Merck collaboration: Research and development of synthetic phage candidates against undisclosed infectious disease agents. No milestones had been achieved and no collaboration revenue recognized by year-end.
Financial results and liquidity
| Metric | 2019 | 2018 |
|---|---|---|
| Revenue | $0 | $0 |
| Research and development expense | $9.8 million | $8.4 million |
| General and administrative expense | $9.3 million | $2.5 million |
| Operating loss | $19.8 million | $17.7 million |
| Net loss | $19.5 million | $16.7 million |
| Basic net loss per share | $2.49 | $3.59 |
| Net cash used in operating activities | $15.6 million | $10.6 million |
| Cash and cash equivalents at year-end | $6.0 million | $9.7 million |
| Working capital at year-end | $1.8 million | $8.3 million |
Operating cash burn increased by $5.0 million year over year. Investing activities provided $2.9 million in 2019, mainly from $3.0 million of cash acquired in the merger; financing activities provided $9.0 million, including approximately $10.0 million of stock proceeds, partly offset by a $1.0 million payment related to the SGI asset acquisition. Gross margins are not meaningful because the company had no revenue.
Total liabilities were $10.9 million and total stockholders’ equity was $14.6 million at year-end. The balance sheet included $2.9 million of operating lease liabilities and $2.3 million of deferred asset-acquisition consideration. The filing reports no conventional borrowing balance. The company reported substantial doubt about its ability to continue as a going concern, citing recurring losses and negative operating cash flow.
Material changes, unusual items, and outlook
- G&A expense rose $6.8 million, mainly due to merger-related professional fees, higher stock-based compensation, insurance, personnel, and public-company costs. R&D expense increased $1.4 million, partly offset by a $1.3 million Australian tax rebate.
- 2018 included $6.8 million of acquired in-process R&D expense; there was no comparable expense in 2019. 2019 included a $0.7 million noncash loss on the sale of the Slovenia subsidiary and a $1.1 million noncash gain from settlement of an acquisition-related derivative liability.
- Management said year-end cash plus expected proceeds from the Innoviva financing would fund planned operations into the second quarter of 2021. The financing was for up to $25.0 million: the first closing raised approximately $2.8 million in February 2020; the remaining approximately $22.2 million was subject to stockholder approval and other closing conditions. This post-year-end financing does not eliminate the filing’s going-concern uncertainty.
- Management expected significant losses and additional capital needs for the foreseeable future. Additional financing could dilute shareholders or require the company to defer or reduce development programs, or relinquish product rights.
- COVID-19 could disrupt clinical trials, patient access, manufacturing, supplies, and financing. Clinical timelines and funding expectations are forward-looking and uncertain.
Investor facts to verify
- Whether the second Innoviva financing tranche received stockholder approval and closed, and the resulting share count, warrant overhang, and ownership concentration. The filing stated Innoviva could hold approximately 46.7% after the second closing and approximately 63.7% if its warrants were exercised.
- Actual cash runway and subsequent financing needs against the stated second-quarter 2021 runway estimate.
- Whether AP-PA02 and AP-SA02 clinical filings and trials began as planned, and the resulting safety, efficacy, and regulatory feedback.
- Whether operating cash burn, clinical costs, and manufacturing readiness materially differ from management’s plans.
- The effects of the merger on period-to-period comparability and the assumptions underpinning the acquired S. aureus in-process R&D valuation.