Savara Inc. — Form 10-Q Summary
Reporting period: Quarter and six months ended June 30, 2018. Unaudited results; comparisons are to the corresponding 2017 periods unless noted. Savara is a clinical-stage respiratory disease company with no product revenue or commercial operations.
Business context and pipeline
Key programs were Molgradex, in Phase 3 for autoimmune pulmonary alveolar proteinosis (aPAP) and Phase 2a for nontuberculous mycobacterial (NTM) lung infection, and AeroVanc, in Phase 3 for persistent MRSA lung infection in people with cystic fibrosis. Savara was preparing a Phase 2a Molgradex study in people with cystic fibrosis and chronic NTM infection. In June, it acquired substantially all Cardeas Pharma assets for 107,579 shares valued at approximately $1.0 million, plus contingent development milestone payments.
Key financial metrics
| Metric | Three months ended June 30 | Six months ended June 30 |
|---|---|---|
| Revenue | None reported | None reported |
| Research and development expense | $9.3 million; prior year $4.2 million | $17.8 million; prior year $7.1 million |
| General and administrative expense | $2.5 million; prior year $5.1 million | $4.3 million; prior year $6.9 million |
| Operating loss | $11.9 million; prior year $9.3 million | $44.0 million; prior year $14.2 million |
| Net loss | $11.6 million; prior year $11.5 million | $38.4 million; prior year $16.5 million |
| Net loss per share | $0.38; prior year $0.90 | $1.26; prior year $2.06 |
| Net cash used in operating activities | Not separately provided | $20.0 million; prior year $10.5 million |
At June 30, cash and cash equivalents were $23.6 million and short-term investments were $51.2 million, totaling $74.8 million in cash and investments. Working capital was approximately $69.9 million. Total assets were $117.9 million and stockholders’ equity was $82.7 million. Gross principal outstanding under the Silicon Valley Bank facility was $15.0 million; the balance sheet shows approximately $15.0 million of debt carrying value, including current and long-term portions. No product margins were reported because Savara had no product sales.
Changes versus prior periods and unusual items
- Second-quarter R&D expense more than doubled, principally reflecting AeroVanc Phase 3 work, expanded Molgradex aPAP and NTM development, and the Cardeas asset payment. The second-quarter net loss was broadly unchanged year over year, as lower G&A and other expenses largely offset higher R&D.
- First-half net loss included a $21.7 million impairment of acquired Aironite in-process research and development after a Phase 2 study failed to meet endpoints and showed limited effectiveness. Savara said it would not pursue further Aironite development. A related $4.6 million deferred-tax-liability reversal contributed to the first-half tax benefit of $5.8 million.
- First-half operating cash use increased to $20.0 million. Investing cash flow was positive $21.2 million, mainly reflecting investment maturities net of purchases; financing cash flow was positive $0.3 million.
- Short-term investments declined from $72.2 million at December 31, 2017 to $51.2 million at June 30, 2018; cash and cash equivalents increased from $22.1 million to $23.6 million.
Outlook, financing, and risks
- Management expected expenses and operating losses to continue increasing as clinical programs advanced. The filing said existing resources were expected to fund planned operations into 2020, while also stating that additional capital would be needed; funding needs depend on clinical progress and costs.
- After quarter-end, Savara completed a July 30 public offering of 4.25 million shares at $11.50 per share, generating approximately $45.7 million in net proceeds. Underwriters also had a 30-day option to buy up to 637,500 additional shares. The proceeds were intended for working capital, clinical development, regulatory work, Molgradex pre-commercialization activities, and general corporate purposes. The ATM program was amended to permit up to $60 million of additional sales, subject to its terms.
- Management expected top-line results from the Molgradex aPAP Phase 3 study in Q2 2019 and from the AeroVanc Phase 3 study in late 2019. FDA guidance led Savara to expand the Molgradex study sample size; enrollment completion and anticipated approval timing were extended by approximately two quarters.
- Principal risks include clinical-trial failure or delay, regulatory requests for additional studies, patient-enrollment challenges, reliance on outside manufacturers and service providers, and the need for future financing. The Molgradex drug substance and product manufacturing process were being transferred to a new site, which could require additional work or delay approval. The company also disclosed contingent Molgradex manufacturing milestones totaling $10.7 million; none had been achieved as of June 30.
- The company reported no material pending legal proceedings. Management concluded disclosure controls were effective as of June 30, 2018.
Important facts for investors to verify
- Progress, enrollment, endpoint performance, and updated timing for the Molgradex and AeroVanc Phase 3 trials, including any effect of the expanded Molgradex study.
- Whether the July offering’s proceeds and any additional ATM sales provide sufficient runway, and how future financing may dilute shareholders.
- Manufacturing-transfer progress and whether regulators require additional studies or changes to planned timelines.
- Whether R&D spending and operating cash use evolve as expected, and whether further asset impairments or contingent obligations arise.
- The status of the Cardeas assets and milestone terms, and the commercial and development rationale for those assets.