Filing Summary
Issuer note: The supplied filing is Mast Therapeutics, Inc.’s Form 10-Q for the quarter ended September 30, 2016; it does not identify the registrant as Savara Inc. The filing was signed November 8, 2016.
Business context and reporting period
Mast was a clinical-stage biopharmaceutical company with no marketed products and no significant product revenue. Its lead program was AIR001, in investigator-sponsored Phase 2 studies for heart failure with preserved ejection fraction (HFpEF). Following negative Phase 3 results for vepoloxamer in sickle cell disease, the company discontinued its vepoloxamer clinical programs in sickle cell disease and heart failure, while pursuing a grant-funded nonclinical ischemic-stroke study and partnership opportunities.
Financial performance and position
| Metric | Q3 2016 | Q3 2015 | Nine months 2016 | Nine months 2015 |
|---|---|---|---|---|
| Revenue | $45,000 | $0 | $45,000 | $0 |
| Research and development | $5.1 million | $7.3 million | $20.7 million | $21.1 million |
| Selling, general and administrative | $2.1 million | $2.5 million | $7.4 million | $8.4 million |
| Operating loss | $7.2 million | $9.8 million | $28.2 million | $29.7 million |
| Net loss | $8.2 million | $9.9 million | $30.1 million | $29.7 million |
| Net loss per share | $0.04 | $0.06 | $0.15 | $0.18 |
The $45,000 revenue was reimbursement of costs under an NIH-funded vepoloxamer nonclinical study, not product sales. Gross margin was not presented; with no product sales, it is not a meaningful operating measure. Q3 net loss narrowed year over year, while nine-month net loss increased slightly. Q3 and nine-month interest expense rose to $0.9 million and $2.0 million, respectively, largely reflecting the Hercules debt facility and debt-cost amortization.
- Cash flows: Nine-month operating cash use was $29.9 million, versus $24.1 million in 2015. Investing activities provided $11.5 million, principally from certificate-of-deposit maturities; financing activities provided $15.9 million, primarily equity proceeds, partly offset by debt payments and costs. Cash and cash equivalents declined by $2.5 million to $20.5 million.
- Liquidity: Cash, cash equivalents and investment securities totaled $27.0 million at September 30, 2016; working capital was $7.4 million. Accumulated deficit was $305.0 million and stockholders’ equity was $13.2 million.
- Debt: The September 30 balance sheet reported debt facility carrying value of $14.2 million ($11.6 million current and $2.6 million long-term). A failed EPIC study triggered a $10.0 million principal prepayment, made October 3, 2016. Principal owed was $3.5 million as of November 3, 2016.
Material changes and outlook
- EPIC, the Phase 3 vepoloxamer sickle-cell study, did not meet primary or secondary efficacy endpoints. The company discontinued vepoloxamer clinical development in sickle cell disease and heart failure and began winding down the studies.
- Management forecast 2016 operating expenses of approximately $31–$32 million, excluding share-based compensation, and 2017 expenses of approximately $8–$9 million on the same basis, reflecting program discontinuation and restructuring. The company expected the cost savings to be more fully realized in 2017.
- Management expected existing resources to fund operations only into the first quarter of 2017 and said current resources were insufficient for the next 12 months. The company stated that these conditions raised substantial doubt about its ability to continue as a going concern. It planned to seek capital through its ATM program and other financing, collaborations or licensing, and was evaluating strategic alternatives, including a merger or asset sale.
- In October 2016, the company eliminated ten positions and expected approximately $0.4 million in one-time severance and related costs, payable in Q4 2016.
- For AIR001, results from the 100-patient investigator-sponsored Phase 2 study were expected in Q4 2017. The filing also described two other Phase 2 studies. Vepoloxamer’s NIH-funded nonclinical ischemic-stroke study was expected to finish in July 2017; the company had not committed company funding to further stroke studies.
- No impairment charge was recorded for goodwill or acquired in-process research and development at September 30, despite the failed vepoloxamer study; the vepoloxamer valuation depended on assumed development in ischemic stroke.
Key risks and items for investors to verify
- Whether the company obtained sufficient financing or strategic support to continue beyond its projected Q1 2017 runway, and whether going-concern uncertainty was subsequently alleviated.
- Execution and results of AIR001 studies, which were investigator-sponsored and largely outside the company’s control.
- Completion and cost of closing out vepoloxamer clinical programs, restructuring, and the $10.0 million debt prepayment; confirm subsequent debt balances and terms.
- Whether the vepoloxamer ischemic-stroke opportunity could be advanced or partnered, and whether revised assumptions could lead to future impairment of the $6.5 million vepoloxamer IPR&D asset.
- Potential dilution and financing constraints: substantial outstanding warrants, continued ATM issuance, and stock-exchange listing and stock-price risks were disclosed.
- Reconcile the requested company name, Savara Inc., with the filing’s stated registrant, Mast Therapeutics, Inc.; the supplied text does not explain the discrepancy.