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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