The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited consolidated financial statements and related notes included in this Quarterly Report on Form 10-Q, and our audited financial statements and notes thereto as of and for the year ended December 31, 2020 included in our Form 10-K filed on March 18, 2021 with the U.S. Securities and Exchange Commission (the "SEC").

Our predecessor, C3 Jian, Inc., was incorporated under the laws of the State of California on November 4, 2005. On February 26, 2016, as part of a reorganization transaction, C3 Jian, Inc. merged with a wholly owned subsidiary of C3J Therapeutics, Inc. ("C3J"), and as part of this process, C3 Jian, Inc. was converted to a limited liability company organized under the laws of the State of California named C3 Jian, LLC. On May 9, 2019, C3J completed a reverse merger with AmpliPhi Biosciences Corporation, a bacteriophage development stage company ("AmpliPhi"), where Ceres Merger Sub, Inc., a wholly-owned subsidiary of AmpliPhi, merged with and into C3J (the "Merger"). Following the completion of the Merger, and a $10.0 million concurrent private placement financing, the former C3J shareholders owned approximately 76% of our common stock and the former AmpliPhi shareholders owned approximately 24% of our common stock.

Immediately prior to the Merger, AmpliPhi completed a 1-for-14 reverse stock split and changed its name to Armata Pharmaceuticals, Inc. Our common stock is traded on the NYSE American exchange under the symbol "ARMP." We are headquartered in Marina del Rey, CA, in a 35,000 square-foot research and development facility built for product development with capabilities spanning from bench to clinic. In addition to microbiology, synthetic biology, formulation, chemistry and analytical laboratories, the facility is equipped with two licensed GMP drug manufacturing suites enabling the production, testing and release of clinical material.

Statements contained in this Quarterly Report on Form 10-Q that are not statements of historical fact are forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. Such forward-looking statements include, without limitation, statements concerning product development plans, commercialization of our products, the expected market opportunity for our products, the use of bacteriophages and synthetic phages to kill bacterial pathogens, having resources sufficient to fund our operations into the first quarter of 2022, future funding sources, general and administrative expenses, clinical trial and other research and development expenses, costs of manufacturing, costs relating to our intellectual property, capital expenditures, the expected benefits of our targeted phage therapies strategy, the potential market for our products, tax credits and carry-forwards, and litigation-related matters. Words such as "believe," "anticipate," "plan," "expect," "intend," "will," "goal," "potential" and similar expressions are intended to identify forward-looking statements, though not all forward-looking statements necessarily contain these identifying words. These statements are subject to risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under Item 1A, "Risk Factors" in our Form 10-K for the year ended December 31, 2020, filed on March 18, 2021 with the SEC, and under Item 1A, "Risk Factors" and elsewhere in this Quarterly Report on Form 10-Q. These forward-looking statements speak only as of the date on which they were made, and we undertake no obligation to update any forward-looking statements.





Overview

We are a clinical-stage biotechnology company focused on the development of pathogen-specific bacteriophage therapeutics for the treatment of antibiotic-resistant and difficult-to-treat bacterial infections using our proprietary bacteriophage-based technology. Bacteriophages or "phages" have a powerful and highly differentiated mechanism of action that enables binding to and killing specific bacteria, in contrast to traditional broad-spectrum antibiotics. We believe that phages represent a promising means to treat bacterial infections, especially those that have developed resistance to current standard of care therapies, including the so-called multidrug-resistant or "superbug" strains of bacteria. We are a leading developer of phage therapeutics which are uniquely positioned to address the growing worldwide threat of antibiotic-resistant bacterial infections.



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We are combining our proprietary approach and expertise in identifying, characterizing and developing both naturally-occurring and engineered (synthetic) bacteriophages with our proprietary phage-specific current good manufacturing practice regulation ("cGMP") manufacturing capabilities to advance a broad pipeline of high-quality bacteriophage product candidates. We believe that synthetic phage, engineered using advances in sequencing and synthetic biology techniques, represent a promising means to advance phage therapy, including phage-based diagnostics and improving upon the ability of natural phage to treat bacterial infections, especially those that have developed resistance to current antibiotic therapies, including the multidrug-resistant or "superbug" bacterial pathogens.

We are developing and advancing our lead clinical phage candidate for Pseudomonas aeruginosa. On October 14, 2020, Armata received the approval to proceed from the U.S. Food and Drug Administration ("FDA") for its Investigational New Drug application for AP-PA02. We plan to continue to advance the "SWARM-P.a." study - a Phase 1b/2a, multicenter, double-blind, randomized, placebo-controlled, single ascending dose (SAD) and multiple ascending dose (MAD) clinical trial to evaluate the safety and tolerability of inhaled AP-PA02 in subjects with CF and chronic pulmonary P. aeruginosa infection, provided that the impacts of COVID-19 do not further impede our ability to enroll subjects in this clinical trial. This study is supported by the CFF, which granted us a Therapeutics Development Award of up to $5.0 million.

We are also developing a phage product candidate for Staphylococcus aureus for the treatment of S. aureus bacteremia. On June 15, 2020, we entered into an agreement (the "MTEC Agreement") with the Medical Technology Enterprise Consortium ("MTEC"), pursuant to which we expect to receive a $15.0 million grant and entered into a three-year program administered by the U.S Department of Defense ("DoD") through MTEC with funding from the Defense Health Agency and Joint Warfighter Medical Research Program. We expect to use the grant to partially fund a Phase 1/2, multi-center, randomized, double-blind, placebo- controlled dose escalation study, provided that the COVID-19 pandemic has been reduced to the point that clinical trials in patients are enrolling, that will assess the safety, tolerability, and efficacy of this development program, using our phage-based candidate, AP-SA02, for the treatment of adults with S. aureus bacteremia.

In partnership with Merck & Co., known as Merck Sharp & Dohme outside of the United States and Canada ("Merck"), we are developing proprietary synthetic phage candidates to target undisclosed infectious disease agents.

Our proprietary phage engineering platform serves to enhance the clinical and commercial prospects of phage therapy.

Attributes of engineered phages can include expanded host range, improved potency which is a fundamental drug property that can translate into improved clinical efficacy, and importantly, biofilm disruption, which is a critical aspect of serious infections that needs to be addressed.

In addition to our more advanced pipeline programs, we have phage discovery efforts underway to target other major pathogens of infectious disease (including ESKAPE pathogens) and preventable infectious disease of the microbiome.

We are committed to conducting randomized controlled clinical trials required for FDA approval in order to move toward commercialization of alternatives to traditional antibiotics and provide a potential method of treating patients suffering from drug-resistant and difficult-to-treat bacterial infections.

The following chart summarizes the status of our phage product candidate development programs and partners.



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We have generally incurred net losses since our inception and our operations to date have been primarily limited to research and development and raising capital. As of September 30, 2021, we had an accumulated deficit of $196.8 million. We anticipate that a substantial portion of our capital resources and efforts in the foreseeable future will be focused on completing the development and seeking to obtain regulatory approval of our product candidates.

We currently expect to use our existing cash and cash equivalents for the continued research and development of our product candidates, including through our targeted phage therapies strategy, and for working capital and other general corporate purposes. We expect to continue to incur significant and increasing operating losses at least for the next several years. We do not expect to generate product revenue unless and until we successfully complete development and obtain marketing approval for at least one of our product candidates.

We may also use a portion of our existing cash and cash equivalents for the potential acquisition of, or investment in, product candidates, technologies, formulations or companies that complement our business, although we have no current understandings, commitments or agreements to do so. Our existing cash and cash equivalents will not be sufficient to enable us to complete all necessary development of any potential product candidates. Accordingly, we will be required to obtain further funding through one or more other public or private equity offerings, debt financings, collaboration, strategic financing, grants or government contract awards, licensing arrangements or other sources. Our ability to raise additional capital may be adversely impacted by potential worsening global economic conditions and the recent disruptions to, and volatility in, financial markets in the United States and worldwide resulting from the ongoing COVID-19 pandemic. Adequate additional funding may not be available to us on acceptable terms, or at all. If we are unable to raise capital when needed or on acceptable terms, we may be required to defer, reduce or eliminate significant planned expenditures, restructure, curtail or eliminate some or all of our development programs or other operations, dispose of assets, enter into arrangements that may require us to relinquish rights to certain of our product candidates, technologies or potential markets, file for bankruptcy or cease operations altogether. Any of these events could have a material adverse effect on our business, financial condition and results of operations and result in a loss of investment by our stockholders.

Business Update Regarding COVID-19

On January 30, 2020, the World Health Organization ("WHO") announced a global health emergency because of a new strain of coronavirus originating in Wuhan, China (the "COVID-19 outbreak") and the risks to the international community as the virus spread globally beyond its point of origin. In March 2020, the WHO classified the COVID-19 outbreak as a pandemic, based on the rapid increase in exposure globally.

The COVID-19 pandemic has directly and indirectly impacted our business, results of operations and financial condition and is expected to continue to impact our business. For example, the COVID-19 pandemic has resulted in



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delays in our clinical trials due to the implementation of COVID-19 protocols at investigator sites, which resulted in longer than anticipated site identification and initiation activities. In addition, while we currently do not anticipate any interruptions in our supply chain, it is possible that the COVID-19 pandemic and the continuing response efforts may have a future impact on our third-party suppliers and partners. It is possible that due to the continued development and manufacturing of vaccines for COVID-19, certain basic supply chain materials such as resins, vessels, vials and stoppers may be in high demand by the pharmaceutical companies developing and manufacturing vaccines and our ability to obtain these materials for our development activities could be negatively impacted. Although we have experienced some delays of this nature in 2021, such delays have not had a material adverse impact on our business, results of operations or financial condition.

The full extent of the COVID-19 pandemic impact continues to depend on future developments that remain highly uncertain and cannot be accurately predicted, including new information that may emerge concerning COVID-19, the actions taken to contain it or treat its impact, the identification and spread of COVID-19 variants such as the Delta variant, the distribution of vaccines, the acceptance of vaccines and the implementation of vaccine mandates, and the economic impact on local, regional, national and international markets. Management continues to actively monitor the developments regarding the pandemic and the impact that the pandemic could have on our financial condition, liquidity, ability to enroll patients in our contemplated clinical trials, manufacturing and research and development operations, suppliers to our operations and suppliers to our outside clinical trial organizations, biotech industry overall, and importantly the health and safety of our workforce. Given the continued volatility of the COVID-19 pandemic and the global responses to curb its spread, we are not able to estimate the effects of the COVID-19 pandemic on our results of operations, financial condition, or liquidity for the remainder of fiscal year 2021 or 2022. Any recovery from negative impacts to our business and related economic impact due to the COVID-19 pandemic may also be slowed or reversed by a number of factors, including the current widespread resurgence in COVID-19 infections attributable to the Delta variant, combined with the seasonal flu.







Recent Events


October 2021 Private Placements

On October 28, 2021, we entered into a securities purchase agreement (the "October 2021 Securities Purchase Agreement") with the Cystic Fibrosis Foundation, a Delaware corporation ("CFF"), our partner for the lead Phase 1b/2 clinical development program, and Innoviva Strategic Opportunities LLC, a wholly-owned subsidiary of Innoviva, Inc. (Nasdaq: INVA) (collectively, "Innoviva") for the private placement of newly issued shares of our common stock, par value $0.01 per share ("Common Stock"). Pursuant to the October 2021 Securities Purchase Agreement, we issued and sold 909,091 shares to CFF and 1,212,122 shares to Innoviva, each at a per share price of $3.30 (the "October 2021 Private Placements"). We received aggregate gross proceeds from the October 2021 Private Placements of approximately $7.0 million, before deducting transaction expenses.



2021 Lease Agreement



On October 28, 2021, we entered into a lease for office and research and development space under a non-cancellable lease in Los Angeles, CA (the "2021 Lease"). The leased space comprises approximately 56,000 square feet. The 2021 Lease commencement date is May 1, 2022 and the total lease term is for 16 years and runs through 2038. Monthly rent for 2022 and 2023 will be fully or partially abated while we and the lessor complete planned tenant improvements to the facility. Base monthly rent will be approximately $0.25 million in 2024. We are entitled to receive an allowance for tenant improvements of up to $6.5 million.





Executive Transition


On August 1, 2021, Todd R. Patrick, who has served as the Company's Chief Executive Officer ("CEO") since May 2019, retired from day-to-day active management of the Company and resigned as CEO. Mr. Patrick will continue to serve as an advisor to the Company's CEO through December 31, 2022 and will continue to serve as a member of the Board of Directors (the "Board") until at least the Company's next Annual Meeting of Shareholders. In connection with



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Mr. Patrick's retirement, Brian Varnum, Ph.D. was appointed to serve as CEO of the Company and as a member of the Company's Board.

On August 1, 2021, the Company and Dr. Varnum entered into an amended employment agreement, which sets forth the terms and conditions of his new position with the Company as previously disclosed in the Form 8-K filed on August 4, 2021.

On August 9, 2021, the Company and Mr. Patrick entered into a letter agreement, which amends his employment agreement and sets forth the terms and conditions of his continuing relationship with the Company as previously disclosed in the Form 8-K filed on August 4, 2021. The letter agreement also provides that if the Company terminates Mr. Patrick's employment other than for cause prior to December 31, 2022, he will continue to receive his salary, bonus, subsidized health insurance premiums and equity vesting from the date of termination through December 31, 2022.





Results of Operations

Comparison of three and nine months ended September 30, 2021 and 2020

Grant revenue

The Company recognized $1.3 million and $0.3 million of grant revenue during the three months ended September 30, 2021 and 2020, respectively, and $3.5 million and $0.3 million of grant revenue during the nine months ended September 30, 2021 and 2020 respectively, which represents MTEC's share of the costs incurred for the Company's AP-SA02 program for the treatment of Staphylococcus aureus bacteremia. These amounts have been invoiced to MTEC.

Research and Development

Research and development expenses for the three months ended September 30, 2021 and 2020 were $5.6 million and $4.1 million, respectively. The net increase of $1.5 million was primarily related to an increase of $0.7 million related to increased clinical trial activities and trial-related outsourcing expenses, $0.6 million in personnel costs, and a $0.2 million increase in professional services expenses.

Research and development expenses for the nine months ended September 30, 2021 and 2020 were $15.2 million and $9.5 million, respectively. The net increase of $5.7 million was primarily related to an increase of $2.2 million in personnel costs, an increase of $3.0 million in clinical trial and related outsourcing expenses, $0.8 million in professional service expenses, and an increase of $0.2 million related to lease expenses. These increases were offset by credits to research and development expenses of $0.8 million related to our award agreement with CFF and a $0.7 million tax rebate from Australian tax authorities during the nine months ended September 30, 2021, as compared to $1.1 million received from CFF and the NIH during the nine months ended September 30, 2020.

General and Administrative

General and administrative expenses were $1.7 million for the three months ended September 30, 2021, as compared to $1.8 million during the same period in 2020. The decrease in general and administrative expenses of $0.1 million was primarily due to a reduction of $0.4 million in stock-based compensation expenses, offset by an increase of $0.3 million related to general corporate and personnel costs.

General and administrative expenses were $6.0 million for the nine months ended September 30, 2021, which remained consistent with the amount for the nine months ended September 30, 2020. For the nine months ended September 30, 2021, general and administrative expenses increased by $0.3 million for personnel costs, and $0.3 million in public company and insurance costs, which were offset by a reduction of $0.6 million in stock-based compensation expenses when compared to the nine months ended September 30, 2020.



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Gain upon extinguishment of Paycheck Protection Program loan

In April 2020, we received loan proceeds of $717,000 ("PPP Loan") under the Paycheck Protection Program ("PPP"). The PPP, established as part of the Coronavirus Aid, Relief and Economic Security Act, provides for loans to qualifying businesses for amounts up to 2.5 times the average monthly payroll expenses of the qualifying business, calculated as provided under the PPP. The PPP provides a mechanism for forgiveness of up to the full amount borrowed, and in July 2021, we received notification of forgiveness of the full loan amount and associated interest from the Small Business Administration. We recorded a gain of $0.7 million from the PPP Loan extinguishment in the statement of operations during the three and nine months ended September 30, 2021.

Other Income (Expense)

For the three and nine months ended September 30, 2021 and 2020, we recorded noncash interest expense of $0 and $0.2 million, and $0.1 million and $0.5 million, respectively, as a result of interest accretion on the time-based cash payments due in connection with the asset acquisition transaction with Synthetic Genomics, Inc. ("SGI").

Income Taxes

There was no income tax expense or benefit for the three or nine months ended September 30, 2021 and 2020.

Operating activities

Net cash used in operating activities for the nine months ended September 30, 2021 was $15.0 million, as compared to $12.0 million for the nine months ended September 30, 2020. The increase of $3.0 million was primarily due to a $1.6 million increase in net loss, a $2.0 million reduction of non-cash reconciling items from net loss to cash used in operating activities, offset by an increase of $0.6 million of cash used for operating assets and liabilities.

Investing activities

Net cash used in investing activities was $1.1 million and $0.5 million for the nine months ended September 30, 2021 and 2020, respectively, and primarily related to capital equipment purchases.

Financing activities

Net cash provided by financing activities was $18.5 million for the nine months ended September 30, 2021, which was primarily comprised of $19.4 million net proceeds raised from the 2021 private placement transactions with Innoviva, and $0.5 million of proceeds received from stock option exercises, offset by a principal payment of $1.4 million in deferred consideration related to the time-based payment obligation in connection with the SGI asset acquisition.

Net cash provided by financing activities was $22.8 million for the nine months ended September 30, 2020, which was comprised of net cash proceeds of $22.9 million raised from the 2020 private placement transaction with Innoviva, $0.7 million proceeds from the Paycheck Protection Program loan, and $0.2 million of proceeds received from warrant and employee stock option exercises, offset by a payment of $1.0 million in deferred consideration related to the time-based payment obligation in connection with the SGI asset acquisition.

Liquidity, Capital Resources and Financial Condition

We have prepared our consolidated financial statements on a going concern basis, which assumes that we will realize our assets and satisfy our liabilities in the normal course of business. However, we have incurred net losses since our inception and have negative operating cash flows. These circumstances raise substantial doubt about our ability to continue as a going concern. The accompanying financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classifications of liabilities that may result from the outcome of the uncertainty concerning our ability to continue as a going concern. While



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management believes this plan to raise additional funds will alleviate the conditions that raise substantial doubt, these plans are not entirely within its control and cannot be assessed as being probable of occurring. The Company may not be able to secure additional financing in a timely manner or on favorable terms, if at all.

As of September 30, 2021, we had unrestricted cash and cash equivalents of $12.1 million. Considering our current cash resources, management believes our existing resources will be sufficient to fund our planned operations into the first quarter of 2022. For the foreseeable future, our ability to continue our operations is dependent upon our ability to obtain additional capital.

Future Capital Requirements

We will need to raise additional capital in the future to continue to fund our operations. Our future funding requirements will depend on many factors, including:

the effects of the continuing COVID-19 pandemic on our clinical programs and

business, including delays or difficulties in enrolling patients in our

? clinical trials, shortage in supply chain materials, labor shortages impacting

our ability to hire and retain qualified personnel, and changes in local, state

or federal regulations as part of a response to the COVID-19 pandemic;

? the costs and timing of our research and development activities;

? the progress and cost of our clinical trials and other research and development

activities;

? manufacturing costs associated with our targeted phage therapies strategy and

other research and development activities;

? the terms and timing of any collaborative, licensing, acquisition or other

arrangements that we may establish;

? manufacturing costs associated with our targeted phage therapies strategy and

other research and development activities;

? the terms and timing of any collaborative, licensing, acquisition or other

arrangements that we may establish;

? whether and when we receive future Australian tax rebates, if any;

? the costs and timing of seeking regulatory approvals;

? the costs of filing, prosecuting and enforcing any patent applications, claims,

patents and other intellectual property rights; and

? the costs of lawsuits involving us or our product candidates.

We may seek to raise capital through a variety of sources, including:

? the public equity market;

? private equity financings;

? collaborative arrangements, government grants or strategic financings;

? licensing arrangements; and




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 ? public or private debt.

Any additional fundraising efforts may divert our management team from their day-to-day activities, which may adversely affect our ability to develop and commercialize our product candidates. Our ability to raise additional funds will depend, in part, on the success of our product development activities, including our targeted phage therapies strategy and any clinical trials we initiate, regulatory events, our ability to identify and enter into in-licensing or other strategic arrangements, and other events or conditions that may affect our value or prospects, as well as factors related to financial, economic and market conditions, many of which are beyond our control. We cannot be certain that sufficient funds will be available to us when required or on acceptable terms, if at all. If we are unable to secure additional funds on a timely basis or on acceptable terms, we may be required to defer, reduce or eliminate significant planned expenditures, restructure, curtail or eliminate some or all of our development programs or other operations, dispose of technology or assets, pursue an acquisition of our company by a third party at a price that may result in a loss on investment for our stockholders, enter into arrangements that may require us to relinquish rights to certain of our product candidates, technologies or potential markets, file for bankruptcy or cease operations altogether. Any of these events could have a material adverse effect on our business, financial condition and results of operations. Moreover, if we are unable to obtain additional funds on a timely basis, there will be substantial doubt about our ability to continue as a going concern and increased risk of insolvency and loss of investment by our stockholders. To the extent that additional capital is raised through the sale of equity or convertible debt securities, the issuance of such securities could result in dilution to our existing stockholders. Our ability to raise additional capital may be adversely impacted by potential worsening of global economic conditions and volatility of financial markets in the United States and worldwide resulting from the ongoing COVID-19 pandemic.

Off-Balance Sheet Arrangements

As of September 30, 2021, we did not have off-balance sheet arrangements.

Recent Accounting Pronouncements

Refer to Note 3 of the condensed consolidated notes to the consolidated financial statements contained elsewhere in this report.

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