Armata Pharmaceuticals, Inc. — Q3 2022 Form 10-Q
Reporting period: Three and nine months ended September 30, 2022. The unaudited filing was signed November 9, 2022. Armata is a clinical-stage biotechnology company developing bacteriophage therapies; it has not generated revenue from product sales.
Key financial metrics
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Grant revenue | $1.338 million | $1.251 million | $4.457 million | $3.485 million |
| Research and development expense | $8.400 million | $5.626 million | $25.448 million | $15.201 million |
| General and administrative expense | $1.561 million | $1.768 million | $5.627 million | $6.058 million |
| Net loss | $8.614 million | $5.419 million | $26.603 million | $17.108 million |
| Net loss per share, basic and diluted | $0.24 | $0.22 | $0.79 | $0.73 |
| Cash used in operating activities | Not separately stated | Not separately stated | $21.996 million | $14.977 million |
Margins: Not meaningful for this pre-commercial company; reported revenue was grant funding, not product sales. No product-sales revenue was reported.
Financial position at September 30, 2022: Cash and cash equivalents were $25.382 million, with a further $5.960 million of restricted cash. Current assets were $33.245 million and current liabilities $7.004 million. Total assets were $92.881 million; total liabilities were $47.304 million; stockholders’ equity was $45.577 million. Liabilities included operating lease obligations of $39.446 million in total; the filing reports no conventional borrowing balance at period end.
Cash flow and financing: Nine-month operating cash use of $21.996 million and capital spending of $2.666 million were offset principally by $44.391 million net proceeds from the February 2022 Innoviva private placement. Net financing cash provided was $44.516 million; cash, cash equivalents and restricted cash increased by $19.854 million to $31.342 million.
Material changes versus prior comparable periods
- For Q3, grant revenue rose modestly year over year, while R&D expense increased $2.774 million and net loss widened $3.195 million. Management attributed higher R&D principally to clinical-trial activity, laboratory supplies, personnel and lease costs.
- For the first nine months, grant revenue increased $0.972 million, R&D expense increased $10.247 million, and net loss widened $9.495 million. Operating cash use increased $7.019 million.
- G&A expense decreased $0.207 million in Q3 and $0.431 million year to date. The prior-year periods included a $0.726 million gain from forgiveness of a Paycheck Protection Program loan; there was no such gain in 2022.
- In February and March 2022, Innoviva purchased 9.0 million shares for $45.0 million gross proceeds and received warrants for up to 4.5 million additional shares. The company reported $44.391 million net proceeds. Shares outstanding increased from 27.1 million at December 31, 2021 to 36.1 million at September 30, 2022.
Outlook, management commentary and risks
- Liquidity and going concern: The company disclosed substantial doubt about its ability to continue as a going concern, citing recurring losses and negative operating cash flows. Management estimated existing resources would fund planned operations into the first quarter of 2023 and said additional capital is necessary. Additional financing is not assured; inability to raise funds could force cuts or delays to development programs or other operations.
- Development outlook: Management projected last subject/last visit in the AP-PA02 cystic fibrosis Phase 1b/2a study during 2022, with top-line data expected in early 2023. The AP-PA02 Phase 2 Tailwind study in non-cystic fibrosis bronchiectasis was initiated in 2022. The company planned to initiate an AP-SA02 prosthetic joint infection study in 2023. These are forward-looking plans, not reported outcomes.
- Grant support: The MTEC award for AP-SA02 was increased by $1.3 million to $16.3 million and extended into Q3 2024. The Cystic Fibrosis Foundation award may provide up to $5.0 million for AP-PA02 development, subject to milestones and agreement terms.
- Key risks: Clinical and regulatory outcomes are uncertain, and the company’s bacteriophage approach is novel with no approved bacteriophage products in the U.S. The filing cites potential trial delays, enrollment challenges, manufacturing and supply constraints, COVID-19 effects, and dependence on external financing. Equity financing may dilute shareholders; collaboration or licensing could require relinquishing product rights.
- Governance and commitments: Innoviva owned approximately 70% of outstanding shares after the 2022 transaction and could hold approximately 80.1% if it exercised its warrants. The company also has long-term operating leases, including a Los Angeles facility lease running through 2038; construction and tenant-improvement costs may affect cash needs. No legal proceeding was identified as expected to have a material adverse effect.
Most important facts for investors to verify
- Actual cash runway and the timing, amount, terms and dilution impact of any future financing, given the disclosed going-concern uncertainty.
- Progress, enrollment, safety and data timing for AP-PA02 and AP-SA02 trials, including whether stated development milestones were achieved.
- Whether the expanded MTEC award and CFF funding are received as expected and remain available subject to their terms.
- Potential dilution from 20.5 million outstanding warrants, stock options and future equity issuance; verify Innoviva’s ownership and voting influence.
- Cash requirements and execution risks tied to the Los Angeles lease buildout and the company’s substantial future lease commitments.