Savara Inc. — Q1 2020 Form 10-Q
Reporting period: Three months ended March 31, 2020; financial statements are unaudited. Savara is a clinical-stage orphan lung disease company with no product revenue and three investigational programs: Molgradex, Apulmiq, and AeroVanc.
Financial performance and liquidity
| Metric | Q1 2020 | Q1 2019 / comparison |
|---|---|---|
| Revenue | No product revenue | No product revenue |
| Research and development expense | $13.2 million | $10.0 million; up 31.7% |
| General and administrative expense | $3.0 million | $2.8 million |
| Total operating expenses | $16.2 million | $12.9 million |
| Net loss | $15.4 million | $12.1 million |
| Basic and diluted net loss per share | $0.27 | $0.34 |
| Cash used in operating activities | $13.1 million | $10.9 million |
R&D expense rose primarily because Savara recorded approximately $5.4 million for the Apulmiq license upfront consideration, partly offset by lower Molgradex and AeroVanc development costs. Net loss increased about 27% year over year. The lower loss per share reflects a higher weighted-average share count.
At March 31, 2020, cash and cash equivalents were $34.5 million and short-term investments were $70.5 million, totaling approximately $105.0 million. Working capital was approximately $100 million; accumulated deficit was $223.3 million. Total assets were $120.0 million and total liabilities were $32.7 million. The $25 million gross debt facility had a $24.7 million carrying value and was classified as long-term. Management said existing resources were expected to fund planned operations into 2022, while also stating that substantial additional capital would be needed for continued development.
Cash and cash equivalents decreased $15.3 million during the quarter. Investing cash use was $1.8 million, including the Apulmiq license cash payment, net of investment-security activity. Financing cash use was $0.5 million, primarily the debt amendment charge. These cash flows include investment purchases, maturities, and sales and should not be read as operating burn alone.
Material changes and program developments
- Apulmiq: The Grifols license became effective March 31, 2020. Savara recorded approximately $5.4 million of R&D expense for upfront consideration, including about $3.2 million cash and one million common shares valued at approximately $2.1 million. Savara is responsible for development and a planned Phase 3 study in non-CF bronchiectasis. The agreement includes up to $50 million in development milestones, up to $100 million in sales milestones, and tiered royalties. Contingent payments were not recorded as liabilities because they were not considered probable or reasonably estimable.
- Molgradex: The 2019 IMPALA Phase 3 study in autoimmune pulmonary alveolar proteinosis did not meet its primary endpoint. The FDA had said the submitted data did not provide sufficient evidence of efficacy and safety; the program received Breakthrough Therapy designation in December 2019. Savara was working with regulators on the design of another Phase 3 study, with cost and timing not yet determined. A Phase 2a study in non-CF NTM reported topline microbiology results in March 2020.
- AeroVanc and Molgradex NTM study: In response to COVID-19 and patient-safety concerns, Savara stopped enrollment in the AeroVanc Phase 3 AVAIL study and the Molgradex Phase 2a ENCORE study in CF patients. Enrolled participants were to continue treatment and visits where possible. AVAIL topline results were expected in early 2021.
- Debt amendment: The January 2020 amendment extended interest-only payments through June 30, 2022, subject to a clinical-trial condition. If no qualifying ongoing Molgradex aPAP Phase 3 or Phase 4 trial has dosed its first patient by March 31, 2021, principal and interest payments begin April 1, 2021 over 24 months. The agreement also requires evidence by June 30, 2021 of at least $25 million in gross proceeds from warrant exercises or equity issuance.
- Molgradex Japan license: The licensee notified Savara of its intent to terminate; termination was scheduled for August 21, 2020. Savara expected to recognize the previously received $0.3 million milestone payment when its remaining performance obligations were met at termination.
Outlook, risks, and contingencies
Savara expects significant future R&D and operating expenses and does not expect near-term product revenue. It may seek financing through equity, debt, grants, or partnerships; availability and terms are uncertain, and equity financing could dilute shareholders. COVID-19 could disrupt clinical enrollment, suppliers, manufacturing, and operations, but management said the financial impact could not yet be quantified. Savara reported no material pending litigation and concluded its disclosure controls were effective as of March 31, 2020.
Unaccrued contingent manufacturing, development, and other milestone commitments totaled approximately $160.1 million, principally including Apulmiq milestones; these amounts depend on future events and are not current recorded liabilities. Other key risks include clinical failure or regulatory delay, reliance on third-party manufacturers and service providers, financing needs, and potential impairment of $10.9 million of acquired in-process R&D.
Important facts for investors to verify
- Progress, design, cost, and funding plan for a new Molgradex aPAP Phase 3, including whether the debt facility’s March 2021 trial condition is met.
- COVID-19 effects on AVAIL, ENCORE, other trials, enrollment, and clinical supply chains.
- Apulmiq Phase 3 plans, funding requirements, license obligations, and any subsequent milestone or royalty exposure.
- Cash burn and financing runway relative to management’s estimate of funding planned operations into 2022.
- Potential dilution: the filing reports substantial warrants and equity awards; it also reports 50.8 million shares outstanding at quarter-end and 52.2 million outstanding on May 4, 2020. The Q1 weighted-average share count was 57.4 million, including pre-funded warrants and one million shares due under the Apulmiq license.
- Whether the Japan license termination and deferred milestone revenue were completed and recognized as expected.