Armata Pharmaceuticals, Inc. — 2023 Third-Quarter Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2023. Armata is a clinical-stage biotechnology company developing bacteriophage therapies for difficult-to-treat and antibiotic-resistant bacterial infections. It reported no commercial product revenue; reported revenue is grant revenue.
Financial results and position
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Grant revenue | $1.2 million | $1.3 million | $3.0 million | $4.5 million |
| Research and development expense | $8.0 million | $8.4 million | $25.8 million | $25.4 million |
| General and administrative expense | $3.6 million | $1.6 million | $8.5 million | $5.6 million |
| Operating loss | $10.3 million | $8.6 million | $31.3 million | $26.6 million |
| Net loss | $31.2 million | $8.6 million | $49.2 million | $26.6 million |
| Basic and diluted loss per share | $0.86 | $0.24 | $1.36 | $0.79 |
At September 30, 2023, cash and cash equivalents were $24.0 million, restricted cash was $5.8 million, and total current assets were $36.6 million. Total liabilities were $125.1 million, including $49.7 million of convertible debt, $22.3 million of long-term debt, and $41.6 million of operating lease liabilities. Shareholders’ equity was a deficit of $12.4 million. The company had an accumulated deficit of $289.0 million.
For the first nine months of 2023, operating cash use was $39.3 million, investing cash use was $5.7 million, and financing provided $54.0 million. Cash, cash equivalents and restricted cash increased by $9.0 million to $29.8 million. The filing does not present a conventional gross margin; operations are pre-commercial and grant revenue is recognized as eligible costs are incurred.
Material changes versus prior periods
- Q3 net loss increased by $22.5 million year over year, largely reflecting $15.8 million of convertible-debt fair-value expense and a $3.9 million debt-extinguishment loss, as well as higher G&A and operating expenses.
- Nine-month net loss increased by $22.6 million. Grant revenue fell 32.7% to $3.0 million; operating expenses rose 10.4% to $34.3 million, driven mainly by higher G&A.
- In July 2023, Armata obtained a $25 million secured loan from related-party shareholder Innoviva at 14% stated interest and amended its $30 million convertible loan, extending both loans’ maturities to January 10, 2025. The new loan’s effective annual interest rate was 27.31% at September 30.
- Property and equipment, net, increased to $9.3 million from $3.6 million at year-end 2022, reflecting investment in the new Los Angeles facility. Construction costs were estimated at $28.6 million in total, with $19.3 million incurred by September 30.
- G&A expense rose 129.5% in Q3 and 50.5% year to date. The filing cites higher legal, accounting and consulting costs, facilities costs, and a one-time $0.5 million prepaid financing cost. A $0.6 million stock-compensation reversal related to the former CEO’s forfeited awards partly reduced reported expense.
Outlook, risks and notable items
- Management said September 30 cash and cash equivalents were expected to fund operations into the first quarter of 2024. The filing states that substantial doubt exists about the company’s ability to continue as a going concern; additional financing is necessary and is not assured. Failure to raise funds could force reductions or delays to development programs or other operations.
- The convertible loan is carried at fair value. Its valuation depends on significant Level 3 assumptions, including volatility and settlement-scenario probabilities; fair-value changes contributed a $13.0 million loss for the first nine months. A qualifying financing of at least $30 million can trigger conversion at a 15% discount to the lowest investor price, subject to agreement terms, creating potential dilution.
- The $25 million loan is secured by substantially all company and domestic subsidiary assets, bears 14% stated interest, and has customary covenants and events of default. Principal and accrued interest are due at maturity.
- Armata reported the first patient dosed in the Phase 2a portion of its AP-SA02 bacteremia diSArm study in September 2023; it said enrollment was continuing and a potential pivotal trial was expected in Q4 2024 or Q1 2025. The AP-PA02 non-cystic fibrosis bronchiectasis Phase 2 study was underway. The company also reported positive topline tolerability and pharmacokinetic findings from its completed AP-PA02 cystic fibrosis study, with bacterial-load findings described as trends.
- The MTEC award of up to $16.3 million partially funds the AP-SA02 bacteremia study and runs through October 2024. The Cystic Fibrosis Foundation award supports AP-PA02 development and includes potential repayment, licensing, royalty, or other obligations under specified circumstances.
- Other risks include clinical and regulatory uncertainty, manufacturing and supplier execution, reliance on additional capital, possible equity dilution or loss of product rights in financing arrangements, and completion costs for the new facility. Management said no material changes had been made to the risk factors in its 2022 Form 10-K. It reported no legal proceedings expected to have a material adverse effect and no off-balance-sheet arrangements.
- Management concluded disclosure controls were effective as of September 30, 2023. The Corporate Controller became principal financial officer in September as the company shifted finance and accounting functions in-house.
Important facts for investors to verify
- Whether Armata secures financing before the disclosed cash runway ends, and the resulting dilution, terms, and impact on going-concern risk.
- Debt balances, interest accruals, collateral and covenant compliance, and the convertible loan’s fair-value assumptions and potential share conversion.
- Enrollment, safety and efficacy updates for AP-SA02 and AP-PA02, including timing and funding for potential pivotal studies.
- Remaining construction costs and timing for the Los Angeles facility, including receipt of the $7.3 million tenant-improvement allowance.
- Grant funding availability and the conditions or future payment obligations attached to the MTEC and CFF arrangements.