SAVARA INC. Cautionary Statement Concerning Forward-Looking Statements
This Quarterly Report on Form 10-Q ("Quarterly Report") contains forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Any
statements contained herein that involve risks and uncertainties, such as
Savara's plans, objectives, expectations, intentions, and beliefs should be
considered forward-looking statements. Savara's actual results could differ
materially from those discussed in these forward-looking statements. Factors
that could cause or contribute to such differences include, but are not limited
to those identified below, the ability to project future cash utilization and
reserves needed for contingent future liabilities and business operations, the
risks associated with the process of conducting clinical trials and developing,
obtaining regulatory approval for and commercializing drug candidates that are
safe and effective for use as human therapeutics, the timing and ability to
raise additional capital as needed to fund continued operations, natural
disasters, pandemics, geopolitical events, and those discussed in the section
entitled "Risk Factors" in this Quarterly Report and in our Annual Report on
Form 10-K for the year ended December 31, 2021 filed with the Securities and
Exchange Commission ("SEC") on March 30, 2022 , all of which are difficult to
predict.
Statements made herein are as of the date of the filing of this Quarterly Report
with the SEC and should not be relied upon as of any subsequent date. We
disclaim any obligation, except as specifically required by law and the rules of
the SEC , to publicly update or revise any such statements to reflect any change
in our expectations or in events, conditions or circumstances on which any such
statements may be based or that may affect the likelihood that actual results
will differ from those set forth in the forward-looking statements.
The following discussion and analysis of the financial condition and results of
operations should be read in conjunction with the accompanying condensed
consolidated financial statements and related notes included elsewhere in this
Quarterly Report and the consolidated financial statements and related notes in
our Annual Report on Form 10-K for the year ended December 31, 2021 .
Overview
Savara Inc. (together with its subsidiaries "Savara," the "Company," "we," "our" or "us") is a clinical-stage biopharmaceutical company focused on rare respiratory diseases. Our lead program, molgramostim nebulizer solution ("molgramostim"), an inhaled biologic, is a granulocyte-macrophage colony-stimulating factor in Phase 3 development for autoimmune pulmonary alveolar proteinosis ("aPAP"). Previously, our pipeline included vancomycin hydrochloride inhalation powder ("vancomycin") for persistent methicillin-resistant Staphylococcus aureus lung infection in people living with cystic fibrosis ("CF") and inhaled liposomal ciprofloxacin (formerly referred to as Apulmiq) for non-CF bronchiectasis. Savara, together with its wholly-owned subsidiaries, operate in one segment with its principal office inAustin, Texas . Since inception, we have devoted our efforts and resources to identifying and developing our product candidates, recruiting personnel, and raising capital. We have incurred operating losses and negative cash flow from operations and have no product revenue from inception to date. From inception toMarch 31, 2022 , we have raised net cash proceeds of approximately$392.9 million , primarily from public offerings of our common stock, private placements of convertible preferred stock, and debt financings. We have never been profitable and have incurred operating losses every year since inception. Our net losses for the three months endedMarch 31, 2022 and 2021 were$8.3 million and$10.2 million , respectively, and the net loss for the year endedDecember 31, 2021 was$43.0 million . As ofMarch 31, 2022 , we had an accumulated deficit of$308.8 million . Our operating losses primarily resulted from expenses incurred in connection with our research and development programs and from general and administrative costs associated with our operations. We have chosen to operate by outsourcing our manufacturing and most of our clinical operations. We expect to incur significant additional expenses and continue to incur operating losses for at least the next several years as we initiate and continue the clinical development of, and seek regulatory approval for, our primary product candidate. We expect that our operating losses will fluctuate significantly from quarter to quarter and year to year due to the timing of clinical development programs and efforts to achieve regulatory approval. As ofMarch 31, 2022 , we had cash and cash equivalents of$79.2 million and short-term investments of$72.6 million . We will continue to require additional capital to continue our clinical development and potential commercialization activities. Although we have sufficient capital to fund many of our planned activities, we may need to continue to raise additional capital to further fund the development of, and seek regulatory approvals for, our product candidate and begin to commercialize any approved product. The amount and timing of our future funding requirements will depend on many factors, including the pace and results of our clinical development efforts. Failure to raise capital as and when needed, on favorable terms or at all, would have a negative impact on our financial condition and our ability to develop our product candidate. 16 --------------------------------------------------------------------------------
COVID-19 Update
The continuing COVID-19 global pandemic poses risks to our business. As we continue enrollment of our Phase 3 trial for the use of molgramostim for the treatment of aPAP, there remains a general uncertainty regarding the impact of COVID-19 on the aPAP patient population, health care providers, and clinical trial staff and personnel. Patients suffering from aPAP lung disease are prone to underlying lung conditions and are often treated by infectious disease specialists and pulmonologists. Some aPAP patients may be hesitant to enroll in the study due to the study requiring multiple clinical site visits, which may lead to COVID-19 exposure. Further, if an aPAP patient enrolled in the study contracted COVID-19, they may experience an interruption in treatment or need to discontinue their participation. There could also be delays in treatment associated with quarantine requirements if a staff member at an enrollment site contracts COVID-19 or treating physicians may need to refocus their attention on COVID-19 as new variants emerge. We are unable to quantify the impact this situation will have on our future financial performance, but the public health actions being undertaken to reduce the spread of the virus have created, and may continue to create, challenges and disruptions to our operations. Management, on an on-going basis, is evaluating our liquidity position, communicating with and monitoring the actions of our service providers, manufacturers, and suppliers and reviewing our near-term financial performance as we manage Savara through the uncertainty related to COVID-19.
As of the date of this report:
•
management monitors local conditions and establishes appropriate policies to help ensure the health and safety of our employees;
•
our third-party service providers, manufacturers, and suppliers may experience similar circumstances, which could negatively impact our supply chain and progress of our development pipeline; and
•
COVID-19 and related safety concerns have and could delay recruitment of our clinical trials.
The COVID-19 pandemic remains extremely fluid and we are continuing to re-assess the impact on our operations by monitoring the spread of COVID-19, emerging COVID-19 variants, and the actions implemented to combat the virus in various regions throughout the world. Where possible and appropriate, we are making necessary operational and strategic decisions in an attempt to mitigate the negative impact of the virus on our operations.
Recent Events
Amended and Restated Loan Agreement
OnApril 21, 2022 , we entered into an Amended and Restated Loan and Security Agreement (the "Amended Loan Agreement") between Savara and our subsidiary,Aravas Inc. ("Aravas"), as borrowers, andSilicon Valley Bank , as lender (the "Lender"), which amended and restated in its entirety the Loan and Security Agreement between Savara and Aravas, as borrowers, and the Lender datedApril 28, 2017 , as subsequently amended onOctober 31, 2017 ,December 4, 2018 ,January 31, 2020 , andMarch 30, 2021 (the "Loan Agreement"). The Amended Loan Agreement provides for a$26.5 million term loan facility, the proceeds of which were used to refinance all outstanding obligations under the Loan Agreement. Pursuant to the Amended Loan Agreement, the loan has an interest-only monthly payment throughApril 21, 2026 (the "Interest-Only Period") and thereafter equal monthly installments of principal plus interest over 12 months untilApril 21, 2027 (the "Maturity Date"). However, we may elect to extend the Interest-Only Period until the Maturity Date if we maintain cash and cash equivalents equal to at least 1.75 times the outstanding principal amount of the loan during the fifth year. If the Interest-Only Period is extended, all principal and unpaid interest is due and payable on the Maturity Date. The loan bears interest at a floating rate equal to the greater of (i) 3% and (ii) the prime rate reported in The Wall Street Journal, minus a spread of 0.5%. Savara is obligated to pay customary closing fees and a final payment of 2.75% of the principal amount advanced under the facility. The Company may prepay the loan in whole or in part at any time, subject to a prepayment fee of 4.25% if prepaid within the first anniversary of the closing date and 1.0% if prepaid between the first and second anniversaries of the closing date. Following the second anniversary, there is no prepayment fee.
Additionally, the Amended Loan Agreement contains an affirmative covenant
providing that if our balance of cash and cash equivalents falls below
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months of operating expenses and (ii) 1.2 times the outstanding principal amount
of the loan (or 1.75 in the final year of the loan if the Interest-Only Period
is extended).
International Conflict
In February 2022 , Russia commenced a military invasion of Ukraine . The political
and physical conditions in Ukraine and Russia , as well as in neighboring
countries, may disrupt our supply chain and increase our costs, which may
adversely affect our ability to conduct ongoing clinical trials and impact
patients' ability to partake in our clinical trials. While we do not believe
this conflict will have a material impact on our current operations, given the
rapidly evolving situation and the potential to expand beyond Ukraine and
Russia , the full impact of the conflict remains uncertain.
Financial Operations Overview
Research and Development Expenses
The largest component of our operating expenses has historically been our investment in research and development activities. We recognize all research and development costs as they are incurred. Research and development expenses consist primarily of the following:
•
expenses incurred under agreements with contract research organizations ("CROs"), consultants, and clinical trial sites that conduct research and development activities on our behalf;
•
laboratory and vendor expenses related to the execution of our clinical trials;
•
contract manufacturing expenses, primarily for the production of clinical supplies; and
•
internal costs that are associated with activities performed by our research and development organization and generally benefit multiple programs. Where appropriate, these costs are allocated by product candidate and consist primarily of:
o
personnel costs, which include salaries, benefits, and stock-based compensation expense;
o
facilities and other expenses, which include expenses for maintenance of facilities; and
o
regulatory expenses and technology license fees related to development activities.
The following table shows our research and development expenses for the periods
indicated:
Three months ended March 31,
2022 2021
(in thousands)
Product candidates:
Molgramostim $ 5,684 $ 5,091
Vancomycin - 2,498
Total research and development expenses
We expect research and development expenses will remain significant in the future as we advance our molgramostim product candidate into and through clinical trials and pursue regulatory approvals, which will require a significant increased investment in regulatory support and contract manufacturing activities, including investing in the development of a second source manufacturer and clinical supplies.
The process of conducting clinical trials necessary to obtain regulatory approval is costly and time consuming. We may never succeed in timely developing and achieving regulatory approval for our product candidates. The probability of success of our product candidates may be affected by numerous factors, including clinical data, competition, intellectual property rights, manufacturing capability, and commercial viability. As a result, we are unable to accurately determine the duration and completion costs of our development projects or when and to what extent we will generate revenue from the commercialization and sale of molgramostim.
General and Administrative Expenses
General and administrative expenses primarily consist of salaries, benefits, and
related costs for personnel in executive, finance and accounting, legal and
investor relations, and professional and consulting fees for accounting, legal,
investor relations, business development, commercial strategy and research,
human resources, and information technology services. Other general and
administrative expenses include facility lease and insurance costs.
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--------------------------------------------------------------------------------Critical Accounting Policies and Estimates
There have not been any material changes during the three months endedMarch 31, 2022 to the methodology applied by management for critical accounting policies previously disclosed in our Annual Report on Form 10-K for the year endedDecember 31, 2021 . Please read Part II, Item 6. Management's Discussion and Analysis of Financial Condition and Results of Operations-Critical Accounting Policies and Estimates in our Annual Report on Form 10-K for the year endedDecember 31, 2021 for further description of our critical accounting policies. Results of Operations - Comparison of Three Months EndedMarch 31, 2022 and 2021 For the Three Months Ended March 31, Dollar 2022 2021 Change (in thousands) Operating expenses: Research and development $ 5,684$ 7,589 $ (1,905 ) General and administrative 2,354 2,778 (424 ) Depreciation and amortization 8 47 (39 ) Total operating expenses 8,046 10,414 (2,368 ) Loss from operations (8,046 ) (10,414 ) 2,368 Other (expense) income, net (254 ) 197 (451 ) Net loss $ (8,300 )$ (10,217 ) $ 1,917 Research and Development Research and development expenses decreased by$1.9 million , or 25.1%, to$5.7 million for the three months endedMarch 31, 2022 from$7.6 million for the three months endedMarch 31, 2021 . The decrease is primarily attributable to an approximately$2.5 million decrease in costs associated with the close-out and wind-down of vancomycin activities. This decrease is partially offset by an approximately$0.6 million increase in costs associated with molgramostim for the treatment of aPAP related to continued screening and enrollment of patients and chemistry, manufacturing, and controls ("CMC") associated with the IMPALA-2 trial. General and Administrative General and administrative expenses decreased by$0.4 million , or 15.3%, to$2.4 million for the three months endedMarch 31, 2022 from$2.8 million for the three months endedMarch 31, 2021 . The decrease is primarily attributable to decreased administrative and compensation costs associated with streamlining certain operational activities, which were initiated during the third quarter of 2021. Other (Expense) Income, Net Other (expense) income, net decreased by$0.5 million , or 83.0%, to a loss of$0.3 million for the three months endedMarch 31, 2022 from income of$0.2 million for the three months endedMarch 31, 2021 . The change is primarily related to a$0.5 million decrease in Tax credit income during the three months endedMarch 31, 2022 , which is a result of decreased spend in our Danish subsidiary during the quarter.
Liquidity and Capital Resources
As ofMarch 31, 2022 , we had$79.2 million of cash and cash equivalents,$72.6 million in short-term investments and an accumulated deficit of$308.8 million . As discussed in Note 6. Long-term Debt in the notes to the condensed consolidated financial statements included in this Quarterly Report, we entered into a Loan and Security Agreement withSilicon Valley Bank during the year endedDecember 31, 2017 , which was amended a fourth time inMarch 2021 , under which we have drawn a total of$25 million . As discussed in Note 12. Subsequent Events in the notes to the consolidated financial statements included in this Quarterly Report, we entered into the Amended Loan Agreement duringApril 2022 that provided for a$26.5 million term loan facility, the proceeds of which were used to refinance all outstanding obligations under the Loan Agreement. OnMarch 11, 2021 , we completed a public issuance of our common stock and pre-funded warrants for gross proceeds of approximately$130 million and net proceeds, after deducting underwriting discounts, commissions and offering expenses, of approximately$122.2 million as discussed in Note 8. Stockholders' Equity in the notes to the condensed consolidated financial statements included in this Quarterly Report. Since 2017, we have completed four public offerings with combined net proceeds, after deducting the underwriting discounts and commissions and offering expenses, of approximately$257.6 million . 19 -------------------------------------------------------------------------------- We have used and intend to use the net proceeds from these offerings for working capital and general corporate purposes, which include, but are not limited to, the funding of clinical development of and pursuing regulatory approval for our product candidate and general and administrative expenses. As we continue to progress on the IMPALA-2 trial and given the uncertainty created by the COVID-19 global pandemic, we will continue to monitor our liquidity and capital requirements.
Cash Flows
The following table summarizes our cash flows for the periods indicated:
Three Months Ended March 31,
2022 2021
(in thousands)
Cash used in operating activities $ (8,425 ) $ (9,597 )
Cash provided by (used in) investing activities 53,665 (77,739 )
Cash (used in) provided by financing activities (1 ) 120,466
Effect of exchange rate changes (24 ) (28 ) Net change in cash$ 45,215 $ 33,102
Cash flows from operating activities
Cash used in operating activities for the three months endedMarch 31, 2022 was$8.4 million , consisting of a net loss of$8.3 million , a$2.5 million decrease in Accounts payable and Accrued expenses and other current liabilities mostly relating to the wind down or completion of our non-aPAP trials. This was partially offset by a$1.6 million decrease in Prepaid and other current assets associated with a reduction in prepaid research and development costs for our IMPALA-2 trial and approximately$1.0 million of noncash charges (comprised of depreciation and amortization including right-of-use assets, accretion on discount to short-term investments, amortization of debt issuance costs and stock-based compensation).
Cash flows from investing activities
Cash used in investing activities of$53.7 million for the three months endedMarch 31, 2022 was primarily associated with cash used for purchases of short-term investments in excess of proceeds from the net sales and maturities of short-term investments.
Cash flows from financing activities
Cash provided by financing activities was minimal for the three months endedMarch 31, 2022 . The change from the three months endedMarch 31, 2021 is primarily related to$121.8 million in net proceeds from the public issuance of common stock and pre-funded warrants and$2.5 million in net proceeds from the exercise of warrants. This was partially offset by the payment of$3.9 million to repurchase outstanding warrants, as discussed in Note 8. Stockholders' Equity in the notes to the condensed consolidated financial statements included in this Quarterly Report.
Future Funding Requirements
We have not generated any revenue from product sales. We do not know when, or if, we will generate any revenue from product sales. We do not expect to generate any revenue from product sales unless and until we obtain regulatory approval for and commercialize our product candidate. At the same time, we expect our expenses to increase in connection with our ongoing development and manufacturing activities, particularly as we continue the research, development, manufacture, and clinical trials of, and seeking regulatory approval for, our product candidate. In addition, subject to obtaining regulatory approval of our product candidate, we anticipate we may need additional funding in connection with our continuing operations. As ofMarch 31, 2022 , we had cash, cash equivalents, and short-term investments of approximately$151.8 million . Although we have sufficient capital to fund our planned activities, including those discussed in Note 9. Commitments - Manufacturing and Other , of the condensed consolidated financial statements in this Quarterly Report, we may need to continue to raise additional capital to further fund the development of, and seek regulatory approvals for, our product candidate and to begin commercialization of any approved product. The amount and timing of our future funding requirements will depend on many factors, including the pace and results of our clinical development efforts. Failure to raise capital as and when needed, on favorable terms or at all, would have a negative impact on our financial condition and our ability to develop our product candidate. 20 -------------------------------------------------------------------------------- Although we are well capitalized, until we can generate a sufficient amount of product revenue to finance our cash requirements, we may finance our future cash needs primarily through the issuance of additional equity securities and potentially through borrowings, grants, and strategic alliances with partner companies. If we are unable to raise additional funds through equity or debt financings when needed, we may be required to delay, limit, reduce, or terminate our product development or commercialization efforts or grant rights to develop and market product candidate to third parties that we would otherwise prefer to develop and market ourselves.
Recent Accounting Pronouncements
See Note 2. Summary of Significant Accounting Policies - Recent Accounting
Pronouncements , of the condensed consolidated financial statements in this
Quarterly Report for a discussion of recent accounting pronouncements and their
effect, if any, on us.
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