ARMATA PHARMACEUTICALS, INC. You should read the following discussion and analysis of our financial condition and results of operations in conjunction with the consolidated financial statements and the related notes contained elsewhere in this Annual Report. Some of the information contained in this discussion and analysis are set forth elsewhere in this Annual Report, including information with respect to our plans and strategy for our business and related financing, includes forward-looking statements that involve risks and uncertainties. See "Special Note Regarding Forward-Looking Statements." Our actual results may differ substantially from those referred to herein due to a number of factors, including but not limited to risks described in the section entitled "Risk Factors" and elsewhere in this Annual Report.
Our predecessor,
Immediately prior to the Merger, AmpliPhi completed a 1-for-14 reverse stock
split and changed its name to
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Statements contained in this Annual Report that are not statements of historical
fact are forward-looking statements within the meaning of the
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.
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 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 P.
aeruginosa. On
We are also developing a phage product candidate for S. aureus for the treatment
of S. aureus bacteremia. On
In partnership with Merck & Co., known as
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These attributes 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 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
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
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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
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 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 response efforts may have a future impact on our third-party suppliers and partners. It is possible that due to the increasing emphasis on the development 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 vaccines and our ability to obtain these materials for our development activities could be negatively impacted. We have experienced some delays of this nature in the fourth quarter of 2020.
The full extent of the COVID-19 pandemic impact will depend on future developments that are 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 development and distribution of vaccines 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 continuing evolution of the COVID-19 outbreak and the global responses to curb its spread, we are not able to estimate the effects of the COVID-19 outbreak on its results of operations, financial condition, or liquidity for fiscal year 2021 or 2022. Any recovery from negative impacts to our business and related economic impact due to the COVID-19 outbreak may also be slowed or reversed by a number of factors, including the current widespread resurgence in COVID-19 infections, combined with the seasonal flu.
Recent Events
On
The Company received aggregate gross proceeds from the 2021 Private Placement of
approximately
Results of Operations
As a result of the Merger, C3J was considered the accounting acquirer of AmpliPhi because C3J's shareholders retained a majority control of ownership of the combined company subsequent to the Merger; therefore, the historical financial statements presented herein prior to the closing of the Merger are the historical financial statements of C3J.
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Comparison of year ended
Grant Revenue
We recognized
Research and Development
Research and development expenses for the year ended
General and Administrative
General and administrative expenses for the year ended
Loss on sale of assets
Loss on sale of available-for-sale assets of
Other Income (Expense)
For the year ended
For the year ended
Income Taxes
There was no income tax expense or benefit for the year ended
Operating activities
Net cash used in operating activities for the year ended
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Table of Contents Investing activities
Net cash used in investing activities of
Financing activities
Net cash provided by financing activities was
Net cash of
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. Management plans to raise additional capital through equity offerings, debt financings, or other capital sources, including potential collaborations, licenses and other similar arrangements. While 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. We may not be able to secure additional financing in a timely manner or on favorable terms, if at all.
On
Management believes our existing cash resources and including the proceeds from
the 2021 Private Placement of
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 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;
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? 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 potential 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
? 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 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 global economic conditions and the recent disruptions to, and
volatility in, financial markets in
Critical Accounting Policies and Use of Estimates
Our significant accounting policies are described in Note 3 to the consolidated financial statements included in this Annual Report.
Our management's discussion and analysis of our financial condition and results
of operations are based on our consolidated financial statements as of
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assets, and stock-based compensation. We base our estimates on historical experience, known trends and events, and various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
Grants and Awards
We determined that grants and awards are out of the scope of ASC Topic 606, Revenue from Contracts with Customers ("ASC 606") because the funding entities do not meet the definition of a "customer", as defined by ASC 606, as there is no transfer of control of goods or services. With respect to each grant or award, we determine if it has a collaboration in accordance with ASC Topic 808, Collaborative Arrangements ("ASC 808"). To the extent the grant or award is within the scope of ASC 808, we recognize amounts received as a contra-expense or grant revenue in the consolidated statement of operations when the related research and development expenses are incurred. For grant and awards outside the scope of ASC 808, we apply ASC 606 or International Accounting Standards No. 20, Accounting for Government Grants and Disclosure of Government Assistance, by analogy, and revenue is recognized when we incur expenses related to the grants for the amount we are entitled to under the provisions of the contract.
We also consider the guidance in ASC Topic 730, Research and Development ("ASC 730"), which requires an assessment, at the inception of the grant or award, of whether the agreement is a liability. If we are obligated to repay funds received regardless of the outcome of the related research and development activities, then we are required to estimate and recognize that liability. Alternatively, if we are not required to repay the funds, then payments received are recorded as revenue or contra-expense as the expenses are incurred.
Deferred grant or award liability represents award funds received or receivable for which the allowable expenses have not yet been incurred as of the balance sheet date.
Valuation of
Our goodwill represents the excess of the cost over the fair value of net assets acquired from our business combination. The determination of the value of goodwill and intangible assets arising from the business combination requires extensive use of accounting estimates and judgments to allocate the purchase price to the fair value of the net tangible and intangible assets acquired, including capitalized in-process research and development, or IPR&D. Intangible assets acquired in a business combination that are used for IPR&D activities are considered indefinite lived until the completion or abandonment of the associated research and development efforts. Upon commercialization of the relevant research and development project, we will amortize the acquired in-process research and development over its estimated useful life or expense the acquired in-process research and development should the research and development project be unsuccessful with no future alternative use.
Impairment of
We perform our goodwill impairment analysis at the reporting unit level. For the
years ended
In accordance with our accounting policy, we completed the annual evaluation for
impairment of goodwill as of
Impairment Review of
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We test our IPR&D asset for impairment as of
If and when a quantitative analysis of IPR&D assets is required based on the result of the optional qualitative assessment, the estimated fair value of IPR&D assets is calculated based on the income approach, which includes discounting expected future net cash flows associated with the assets to a net present value. The fair value measurements utilized to perform the impairment analysis are categorized within Level 3 of the fair value hierarchy. Significant management judgment is required in the forecast of future operating results that are used in our impairment analysis. The estimates management use are consistent with the plans and estimates that it uses to manage its business. Significant assumptions utilized the income approach model include the discount rate, timing of clinical studies and regulatory approvals, the probability of success of its research and development programs, timing of commercialization of these programs, forecasted sales, gross margin, selling, general and administrative expenses, capital expenditures, as well as anticipated growth rates. Our analysis indicated no impairment existed.
Stock-Based Compensation
Compensation expense related to stock options granted is measured at the grant
date based on the estimated fair value of the award and is recognized on an
accelerated attribution method over the requisite service period. We determine
the estimated fair value of each stock option on the date of grant using the
Black-Scholes valuation model which uses assumptions regarding a number of
complex and subjective variables. The risk-free interest rate is based on the
Stock-based compensation expense for an award with a performance condition is recognized when the achievement of such performance condition is determined to be probable. If the outcome of such performance condition is not determined to be probable or is not met, no compensation expense is recognized and any previously recognized compensation expense is reversed.
Recent Accounting Pronouncements
Refer to Note 3 of the notes to the consolidated financial statements contained elsewhere in this Annual Report.
Off-Balance Sheet Arrangements
As of
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