UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2020

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     

Commission File Number 001-32157

 

Savara Inc.

(Exact name of registrant as specified in its charter)

 

 

Delaware

 

84-1318182

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

 

 

6836 Bee Cave Road, Building III, Suite 200

Austin, TX

 

78746

(Address of principal executive offices)

 

(Zip Code)

(512) 614-1848

(Registrant’s telephone number, including area code)

N/A

 

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange on which registered

Common Stock, par value $0.001 per share

 

SVRA

 

The Nasdaq Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

  

Accelerated filer

 

 

 

 

 

Non-accelerated filer

 

   

  

Smaller reporting company

 

 

 

 

 

 

 

 

 

 

 

 

Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.    

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  

As of May 4, 2020, the registrant had 52,187,063 shares of common stock, $0.001 par value per share, outstanding.

 

 


 

Table of Contents

 

 

 

Page

PART I.

FINANCIAL INFORMATION

 

Item 1.

Financial Statements (Unaudited)

 

 

Condensed Consolidated Balance Sheets

1

 

Condensed Consolidated Statements of Operations and Comprehensive Loss

2

 

Consolidated Statements of Changes in Stockholders’ Equity

3

 

Condensed Consolidated Statements of Cash Flows

4

 

Notes to Condensed Consolidated Financial Statements

5

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

22

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

30

Item 4.

Controls and Procedures

30

PART II.

OTHER INFORMATION

31

Item 1.

Legal Proceedings

31

Item 1A.

Risk Factors

31

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

54

Item 3.

Defaults Upon Senior Securities

54

Item 4.

Mine Safety Disclosures

54

Item 5.

Other Information

54

Item 6.

Exhibits

54

Exhibit Index

55

Signatures

56

 

 

 

i


 

Savara Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(In thousands, except share and per share amounts)

(Unaudited)

 

 

 

March 31,

2020

 

 

December 31,

2019

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

34,515

 

 

$

49,804

 

Short-term investments

 

 

70,472

 

 

 

71,957

 

Prepaid expenses and other current assets

 

 

2,458

 

 

 

2,306

 

Total current assets

 

 

107,445

 

 

 

124,067

 

Property and equipment, net

 

 

294

 

 

 

352

 

In-process R&D

 

 

10,930

 

 

 

11,111

 

Other non-current assets

 

 

1,306

 

 

 

673

 

Total assets

 

$

119,975

 

 

$

136,203

 

Liabilities and stockholders’ equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

1,227

 

 

$

3,409

 

Accrued expenses and other current liabilities

 

 

6,502

 

 

 

5,471

 

Debt facility

 

 

 

 

 

2,000

 

Total current liabilities

 

 

7,729

 

 

 

10,880

 

Long-term liabilities:

 

 

 

 

 

 

 

 

Debt facility

 

 

24,731

 

 

 

23,112

 

Other long-term liabilities

 

 

199

 

 

 

513

 

Total liabilities

 

 

32,659

 

 

 

34,505

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

Common stock, $0.001 par value, 200,000,000 shares authorized as of March 31, 2020

   and December 31, 2019; 50,844,504 and 50,790,441 shares issued and outstanding

   as of March 31, 2020 and December 31, 2019, respectively

 

 

52

 

 

 

52

 

Additional paid-in capital

 

 

310,705

 

 

 

309,555

 

Accumulated other comprehensive loss

 

 

(128

)

 

 

(17

)

Accumulated deficit

 

 

(223,313

)

 

 

(207,892

)

Total stockholders’ equity

 

 

87,316

 

 

 

101,698

 

Total liabilities and stockholders’ equity

 

$

119,975

 

 

$

136,203

 

 

The accompanying notes are an integral part of these financial statements.

1


 

Savara Inc. and Subsidiaries

Condensed Consolidated Statements of Operations and Comprehensive Loss

(In thousands, except share and per share amounts)

(Unaudited)

 

 

 

Three Months Ended

March 31,

 

 

 

2020

 

 

2019

 

Operating expenses:

 

 

 

 

 

 

 

 

Research and development

 

$

13,200

 

 

$

10,019

 

General and administrative

 

 

2,982

 

 

 

2,763

 

Depreciation and amortization

 

 

58

 

 

 

138

 

Total operating expenses

 

 

16,240

 

 

 

12,920

 

Loss from operations

 

 

(16,240

)

 

 

(12,920

)

Other income, net:

 

 

 

 

 

 

 

 

Interest expense, net

 

 

(160

)

 

 

(20

)

Foreign currency exchange gain (loss)

 

 

156

 

 

 

(59

)

Tax credit income

 

 

821

 

 

 

964

 

Change in fair value of financial instruments

 

 

2

 

 

 

(77

)

Total other income

 

 

819

 

 

 

808

 

Loss before income taxes

 

 

(15,421

)

 

 

(12,112

)

Income tax benefit

 

 

 

 

 

 

Net loss

 

$

(15,421

)

 

$

(12,112

)

Net loss per share:

 

 

 

 

 

 

 

 

Basic and diluted

 

$

(0.27

)

 

$

(0.34

)

Weighted average common shares outstanding:

 

 

 

 

 

 

 

 

Basic and diluted

 

 

57,364,265

 

 

 

36,016,406

 

Other comprehensive loss:

 

 

 

 

 

 

 

 

Loss on foreign currency translation

 

 

(128

)

 

 

(225

)

Unrealized gain on short-term investments

 

 

17

 

 

 

26

 

Total comprehensive loss

 

$

(15,532

)

 

$

(12,311

)

 

The accompanying notes are an integral part of these financial statements.

 

 

2


 

Savara Inc. and Subsidiaries

Consolidated Statements of Changes in Stockholders’ Equity

Periods Ended March 31, 2020 and 2019

(In thousands, except share amounts)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders’ Equity

 

 

 

Common Stock

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

Number of

Shares

 

 

Amount

 

 

Additional

Paid-In

Capital

 

 

Accumulated

Deficit

 

 

Other

Comprehensive

Income

 

 

Total

 

Balance on December 31, 2018

 

 

35,146,096

 

 

$

36

 

 

$

237,702

 

 

$

(129,719

)

 

$

200

 

 

$

108,219

 

Issuance of common stock upon at the market

  offerings, net

 

 

647,426

 

 

 

 

 

 

4,890

 

 

 

 

 

 

 

 

 

4,890

 

Issuance of common stock for settlement of RSUs

 

 

13,125

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of common stock upon exercise of stock

  options

 

 

23,593

 

 

 

 

 

 

6

 

 

 

 

 

 

 

 

 

6

 

Stock-based compensation

 

 

 

 

 

 

 

 

1,000

 

 

 

 

 

 

 

 

 

1,000

 

Foreign exchange translation adjustment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(225

)

 

 

(225

)

Unrealized gain on short-term investments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

26

 

 

 

26

 

Net loss incurred

 

 

 

 

 

 

 

 

 

 

 

(12,112

)

 

 

 

 

 

(12,112

)

Balance on March 31, 2019

 

 

35,830,240

 

 

$

36

 

 

$

243,598

 

 

$

(141,831

)

 

$

1

 

 

$

101,804

 

 

 

 

Stockholders’ Equity

 

 

 

Common Stock

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

Number of

Shares

 

 

Amount

 

 

Additional

Paid-In

Capital

 

 

Accumulated

Deficit

 

 

Other

Comprehensive

Loss

 

 

Total

 

Balance on December 31, 2019

 

 

50,790,441

 

 

$

52

 

 

$

309,555

 

 

$

(207,892

)

 

$

(17

)

 

$

101,698

 

Issuance of common stock for settlement of RSUs

 

 

12,750

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of common stock upon exercise of stock

  options

 

 

41,313

 

 

 

 

 

 

48

 

 

 

 

 

 

 

 

 

48

 

Closing costs for previous issuance of securities in

  private placement

 

 

 

 

 

 

 

 

(120

)

 

 

 

 

 

 

 

 

(120

)

Incremental cost due to modification of detachable

  warrants previously issued with debt instrument

 

 

 

 

 

 

 

 

28

 

 

 

 

 

 

 

 

 

28

 

Stock-based compensation

 

 

 

 

 

 

 

 

1,194

 

 

 

 

 

 

 

 

 

 

1,194

 

Foreign exchange translation adjustment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(128

)

 

 

(128

)

Unrealized gain on short-term investments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

17

 

 

 

17

 

Net loss incurred

 

 

 

 

 

 

 

 

 

 

 

(15,421

)

 

 

 

 

 

(15,421

)

Balance on March 31, 2020

 

 

50,844,504

 

 

$

52

 

 

$

310,705

 

 

$

(223,313

)

 

$

(128

)

 

$

87,316

 

 

The accompanying notes are an integral part of these financial statements.

3


 

Savara Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

 

 

 

Three Months Ended

March 31,

 

 

 

2020

 

 

2019

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(15,421

)

 

$

(12,112

)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization including right-of-use assets

 

 

242

 

 

 

307

 

Acquired in-process research and development (Note 7)

 

 

5,367

 

 

 

 

Changes in fair value of financial instruments

 

 

(2

)

 

 

77

 

Change in fair value of contingent consideration

 

 

 

 

 

133

 

Noncash interest (income) expense

 

 

133

 

 

 

(4

)

Foreign currency (gain) loss

 

 

(156

)

 

 

59

 

Amortization of debt issuance costs

 

 

134

 

 

 

147

 

Accretion on discount to short-term investments

 

 

(69

)

 

 

(342

)

Stock-based compensation

 

 

1,194

 

 

 

1,000

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Prepaid expenses and other current assets

 

 

(195

)

 

 

69

 

Non-current assets

 

 

(821

)

 

 

(953

)

Accounts payable and accrued expenses and other current liabilities

 

 

(3,180

)

 

 

953

 

Long-term liabilities

 

 

(305

)

 

 

(193

)

Net cash used in operating activities

 

$

(13,079

)

 

$

(10,859

)

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Purchase of property and equipment

 

 

(4

)

 

 

(96

)

Purchase in-process research and development (Note 7)

 

 

(3,247

)

 

 

 

Purchase of available-for-sale securities, net

 

 

(35,614

)

 

 

(46,035

)

Maturities of available-for-sale securities

 

 

31,300

 

 

 

42,800

 

Sale of available-for-sale securities, net

 

 

5,780

 

 

 

10,651

 

Net cash (used in) provided by investing activities

 

$

(1,785

)

 

$

7,320

 

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Issuance of common stock upon at the market offerings, net

 

$

 

 

$

4,890

 

Repayment of debt facility

 

 

(514

)

 

 

 

Proceeds from exercise of stock options

 

 

48

 

 

 

6

 

Net cash (used in) provided by financing activities

 

$

(466

)

 

$

4,896

 

Effect of exchange rate changes on cash and cash equivalents

 

 

41

 

 

 

13

 

Increase (decrease) in cash and cash equivalents

 

$

(15,289

)

 

$

1,370

 

Cash and cash equivalents beginning of period

 

 

49,804

 

 

 

24,301

 

Cash and cash equivalents end of period

 

$

34,515

 

 

$

25,671

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-cash transactions

 

 

 

 

 

 

 

 

Acquisition of in-process research and development (Note 7)

 

$

(2,120

)

 

$

 

 

 

 

 

 

 

 

 

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

 

 

Cash paid for interest and end of period charge due upon debt facility amendment

 

$

990

 

 

$

528

 

 

 

 

 

 

 

 

 

 

 

The accompanying notes are an integral part of these financial statements.

4


 

Savara Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

1. Description of Business and Basis of Presentation

Description of Business

Savara Inc. (together with its subsidiaries “Savara,” the “Company,” “we” or “us”) is an orphan lung disease company with a pipeline that comprises three investigational compounds, all of which use an inhaled delivery route. The Company’s lead program, Molgradex, is an inhaled granulocyte-macrophage colony-stimulating factor (“GM-CSF”) in Phase 3 development for autoimmune pulmonary alveolar proteinosis (“aPAP”) and in Phase 2a development for nontuberculous mycobacterial (“NTM”) lung infection in both non-cystic fibrosis (“CF”) and CF-affected individuals. Apulmiq is an inhaled liposomal ciprofloxacin in Phase 3 development for non-CF bronchiectasis (“NCFB”). AeroVanc is an inhaled vancomycin in Phase 3 development for persistent methicillin-resistant Staphylococcus aureus (“MRSA”) lung infection in people living with CF. The Company and its wholly owned subsidiaries operate in one segment with its principal offices in Austin, Texas, USA.

Since inception, Savara has devoted substantially all of its efforts and resources to identifying and developing its product candidates, recruiting personnel, and raising capital. Savara has incurred operating losses and negative cash flow from operations and has no product revenue from inception to date. The Company has not yet commenced commercial operations.

Basis of Presentation

The interim condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States (“U.S. GAAP”) as defined by the Financial Accounting Standards Board (“FASB”). These condensed consolidated financial statements should be read in conjunction with the audited financial statements and notes thereto for the year ended December 31, 2019. Certain prior period amounts have been reclassified for consistency with current period presentation.

Unaudited Interim Financial Information

The interim condensed consolidated financial statements included in this document are unaudited. The unaudited interim financial statements have been prepared on the same basis as the annual financial statements and reflect, in the opinion of management, all adjustments of a normal and recurring nature that are necessary for a fair statement of the Company’s financial position as of March 31, 2020, and its results of operations for the three months ended March 31, 2020 and 2019, and cash flows for the three months ended March 31, 2020 and 2019. The results of operations for interim periods shown in this report are not necessarily indicative of the results to be expected for the year ending December 31, 2020 or for any other future annual or interim period. The December 31, 2019 consolidated balance sheet was derived from audited financial statements but does not include all disclosures required by U.S. GAAP. These condensed consolidated financial statements should be read in conjunction with the audited financial statements and notes thereto for the year ended December 31, 2019.

2. Summary of Significant Accounting Policies

Liquidity

As of March 31, 2020, the Company had an accumulated deficit of approximately $223.3 million. The Company also had negative cash flow from operations of approximately $13.1 million during the three months ended March 31, 2020. The cost to further develop and obtain regulatory approval for any drug is substantial and, as noted below, the Company may have to take certain steps to maintain a positive cash position. Accordingly, the Company will need additional capital to further fund the development of, and seek regulatory approvals for, its product candidates and begin to commercialize any approved products.

Currently, the Company is primarily focused on the development of respiratory drugs and believes such activities will result in the Company’s continued incurrence of significant research and development and other expenses related to those programs. If the clinical trials for any of the Company’s product candidates fail or produce unsuccessful results and those product candidates do not gain regulatory approval, or if any of the Company’s product candidates, if approved, fail to achieve market acceptance, the Company may never become profitable. Even if the Company achieves profitability in the future, it may not be able to sustain profitability in subsequent periods. The Company is also continuously and critically reviewing our liquidity and anticipated capital requirements in light of the uncertainty resulting from the COVID-19 global pandemic. The Company intends to cover its future operating expenses through cash and cash equivalents on hand and through a combination of equity offerings, debt financings, government or other third-party funding, and other collaborations and strategic alliances with partner companies. The Company cannot be sure that additional financing will be available when needed or that, if available, financing will be obtained on terms favorable to the Company or its stockholders.

5


 

While the Company had cash and cash equivalents of $34.5 million and short-term investments of $70.5 million as of March 31, 2020, the Company intends to continue to raise additional capital as needed through the issuance of additional equity securities and potentially through borrowings, and strategic alliances with partner companies. However, if such financings are not available timely and at adequate levels, the Company will need to reevaluate its operating plans. The condensed consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Principles of Consolidation

The interim condensed consolidated financial statements of the Company are stated in U.S. dollars and are prepared using U.S. GAAP. These financial statements include the accounts of the Company and its wholly owned subsidiaries. The financial statements of the Company’s wholly owned subsidiaries are recorded in their functional currency and translated into the reporting currency. The cumulative effect of changes in exchange rates between the foreign entity’s functional currency and the reporting currency is reported in “Accumulated other comprehensive income (loss).” All intercompany transactions and accounts have been eliminated in consolidation.

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires the Company to make certain estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Management’s estimates include those related to the accrual of research and development and general and administrative costs, certain financial instruments recorded at fair value, contingent consideration, stock-based compensation, and the valuation allowance for deferred tax assets. The Company bases its estimates on historical experience and on various other market-specific and relevant assumptions that it believes to be reasonable under the circumstances. Accordingly, actual results could be materially different from those estimates.

Risks and Uncertainties

The product candidates being developed by the Company require approvals from the U.S. Food and Drug Administration (“FDA”) or foreign regulatory agencies prior to commercial sales. There can be no assurance that the Company’s product candidates will receive the necessary approvals. If the Company is denied regulatory approval of its product candidates, or if approval is delayed, it may have a material adverse impact on the Company’s business, results of operations, and its financial position.

The Company is subject to a number of risks similar to other life science companies, including, but not limited to, risks related to the successful discovery and development of drug candidates, raising additional capital, development of competing drugs and therapies, protection of proprietary technology, and market acceptance of the Company’s products. As a result of these and other factors and the related uncertainties, there can be no assurance of the Company’s future success.

Cash and Cash Equivalents

Cash and cash equivalents consist of cash and institutional bank money market accounts with original maturities of three months or less when acquired and are stated at cost, which approximates fair value.

 

Short-term Investments

The Company has classified its investments in debt securities with readily determinable fair value as available-for-sale securities. These securities are carried at estimated fair value with the aggregate unrealized gains and losses related to these investments reflected as a part of “Accumulated other comprehensive income (loss)” within stockholders’ equity.

The fair value of the investments is based on the specific quoted market price of the securities or comparable securities at the balance sheet dates. Investments in debt securities are considered to be impaired when a decline in fair value is judged to be other than temporary because the Company either intends to sell or it is more-likely-than not that it will have to sell the impaired security before recovery. Once a decline in fair value is determined to be other than temporary, an impairment charge is recorded and a new cost basis in the investment is established.

 

Concentration of Credit Risk

Financial instruments, which potentially subject the Company to concentrations of credit risk, consist principally of cash and cash equivalents and foreign exchange derivatives not designated as hedging. The Company places its cash and cash equivalents with a limited number of high-quality financial institutions and at times may exceed the amount of insurance provided on such deposits.

6


 

Accrued Research and Development Costs

The Company records the costs associated with research, nonclinical studies, clinical trials, and manufacturing development as incurred. These costs are a significant component of the Company’s research and development expenses, with a substantial portion of the Company’s on-going research and development activities conducted by third-party service providers, including contract research and manufacturing organizations.

The Company accrues for expenses resulting from obligations under agreements with contract research organizations (“CROs”), contract manufacturing organizations (“CMOs”), and other outside service providers for which payment flows do not match the periods over which materials or services are provided to the Company. Accruals are recorded based on estimates of services received and efforts expended pursuant to agreements established with CROs, CMOs, and other outside service providers. These estimates are typically based on contracted amounts applied to the proportion of work performed and determined through analysis with internal personnel and external service providers as to the progress or stage of completion of the services. The Company makes significant judgments and estimates in determining the accrual balance in each reporting period. In the event advance payments are made to a CRO, CMO, or outside service provider, the payments will be recorded as a prepaid asset which will be amortized or expensed as the contracted services are performed. As actual costs become known, the Company adjusts its prepaids and accruals. Inputs, such as the services performed, the number of patients enrolled, or the study duration, may vary from the Company’s estimates resulting in adjustments to research and development expense in future periods. Changes in these estimates that result in material changes to the Company’s accruals could materially affect the Company’s results of operations. To date, the Company has not experienced any material deviations between accrued and actual research and development expenses.

 

 

Business Combinations

 

Assets acquired and liabilities assumed as part of a business acquisition are recorded at their estimated fair value at the date of acquisition. The excess of purchase price over the fair value of assets acquired and liabilities assumed is recorded as goodwill. Determining fair value of identifiable assets, particularly intangibles, and liabilities acquired also requires management to make estimates, which are based on available information and, in some cases, assumptions with respect to the timing and amount of future revenue and expenses associated with an asset.

 

License and Collaboration Agreements

 

The Company enters into license and collaboration agreements with third parties whereby the Company purchases the rights to develop, market, sell and/or distribute the underlying pharmaceutical products or drug candidates. Pursuant to these agreements, the Company is generally required to make up-front payments, milestone payments contingent upon the achievement of certain pre-determined criteria, royalty payments based on specified sales levels of the underlying products and/or certain other payments. Up-front payments are either expensed immediately as research and development or capitalized. The determination to capitalize amounts related to licenses is based on management’s judgments with respect to stage of development, the nature of the rights acquired, alternative future uses, developmental and regulatory issues and challenges, the net realizable value of such amounts based on projected sales of the underlying products, the commercial status of the underlying products, and/or various other competitive factors. Milestone payments made prior to regulatory approval are generally expensed as incurred and milestone payments made subsequent to regulatory approval are generally capitalized as an intangible asset. Royalty payments are expensed as incurred. Other payments made pursuant to license and collaboration agreements, which are generally related to research and development activities, are expensed as incurred.

Goodwill, Acquired In-Process Research and Development, and Deferred Tax Liability

Although the Company does not have any goodwill as of March 31, 2020, it has adopted the following accounting policy. Goodwill represents the excess of purchase price over the fair value of net assets acquired by the Company. Goodwill is not amortized but assessed for impairment on an annual basis or more frequently if impairment indicators exist. Current guidance issued by the FASB, as previously adopted by the Company, provides an impairment model whereby the Company has the option to implement a one-step method for determining impairment of goodwill, simplifying the subsequent measurement of goodwill by eliminating Step 2 (quantitative calculation of measuring a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount of that goodwill) from the goodwill impairment test. Under the amendments in this guidance, an entity should perform its annual goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. Additionally, an entity should consider income tax effects from any tax-deductible goodwill on the carrying amount of the reporting unit when measuring the goodwill impairment loss, if applicable.

 

Acquired in-process research and development (“IPR&D”) is considered an indefinite-lived intangible asset and is assessed for impairment annually or more frequently if impairment indicators exist. For instance, based upon the ultimate scope and scale of the COVID-19 global pandemic, there may be materially negative impacts to the assumptions made with respect to our IPR&D assets that could result in an impairment of such assets. For the three months ended March 31, 2020, the impact of COVID-19 did not trigger any impairment indicators.

7


 

The Company adopted accounting guidance related to its annual acquired IPR&D impairment test, a two-step method, which allows the Company to first assess qualitative factors before performing a quantitative assessment of the fair value of a reporting unit. If it is determined on the basis of qualitative factors that the fair value of the IPR&D is more likely than not less than the carrying amount, a quantitative impairment test is required.

If the associated research and development effort is abandoned, the related asset will be written-off, and the Company will record a noncash impairment loss on its consolidated statements of operations and comprehensive loss. For those products that reach commercialization, the IPR&D asset will be amortized over its estimated useful life.

The Company performs its annual goodwill impairment test and IPR&D impairment test, as described above, as of June 30th and September 30th, respectively, or whenever an event or change in circumstances occurs that would require reassessment of the recoverability of those assets. For the three months ended March 31, 2020, the Company experienced a decrease of approximately $0.2 million in the carrying value of IPR&D, which was due to foreign currency translation.

Tax Credit Receivable

The Company has recorded a Danish tax credit earned by its subsidiary, Savara ApS, as of March 31, 2020. Under Danish tax law, Denmark remits a research and development tax credit equal to 22% of qualified research and development expenditures, not to exceed established thresholds. As of March 31, 2020, credits totaling $1.6 million had been generated but not yet received. Of this total Danish tax credit, $0.8 million is related to research and development activities incurred during the year ended December 31, 2019 and is recorded in “Prepaid expenses and other current assets” and expected to be received in the fourth quarter of 2020. The remaining portion of the Danish tax credit of $0.8 million, which was generated during the three months ended March 31, 2020, is recorded in “Other non-current assets” and is expected to be received in the fourth quarter of 2021.

The Company also recognized tax credit income for the three months ended March 31, 2020 as provided by the Australian Taxation Office for qualified research and development expenditures incurred through our subsidiary, Savara Australia Pty. Limited. Under Australian tax law, Australia remits a research and development tax credit equal to 43.5% of qualified research and development expenditures, not to exceed established thresholds. As of March 31, 2020, credits totaling $0.5 million had been generated but not yet received. Of this total Australian tax credit, $0.4 million is related to research and development activities incurred during the year ended December 31, 2019 and is recorded in “Prepaid expenses and other current assets” and expected to be received during the year ending December 31, 2020. The remaining portion of the Australian tax credit of $0.1 million, which was generated during the three months ended March 31, 2020, is recorded in “Other non-current assets” and is expected to be received during the year ended December 31, 2021.

 

Leases

In February 2016, the FASB issued Accounting Standards Update (“ASU”) 2016-02, “Leases (Topic 842)” (“ASU 2016-02”) as codified in Accounting Standards Codification (“ASC”) 842 (“ASC 842”). ASU 2016-02, ASC 842, and additional issued guidance are intended to improve financial reporting of leasing transactions by requiring organizations that lease assets to recognize assets and liabilities for the rights and obligations created by leases that extend more than twelve months. This accounting update also requires additional disclosures surrounding the amount, timing, and uncertainty of cash flows arising from leases. ASU 2016-02 is effective for financial statements issued for annual and interim periods beginning after December 15, 2018 for public business entities. The Company adopted ASU 2016-02 as of January 1, 2019 using the effective date transition method of implementation offered under ASU 2018-11, “Leases (Topic 842) – Targeted Improvements” issued in July 2018 (“ASU 2018-11”), under which entities may change their date of initial application of ASU 2016-02 to the beginning of the period of adoption, or January 1, 2019, in the case of Savara. Accordingly, the Company is required to apply the prior lease guidance pursuant to ASC Topic 840 in the comparative periods, provide the disclosures required by ASC Topic 840 for all periods that continue to be presented in accordance with ASC Topic 840, recognize the effects of applying ASC 842 as a cumulative-effect adjustment to retained earnings as of January 1, 2019, if any, and provide certain disclosures under ASC 842 (see Note 11). The Company has also elected the package of practical expedients, applied by class of underlying asset, permitted in ASU 2018-11. Accordingly, the Company accounted for its existing operating leases as operating leases under the new guidance, without reassessing (a) whether the contracts contain a lease under ASC 842, (b) whether classification of the operating leases would be different in accordance with ASC 842, and (c) whether the unamortized initial direct costs before transition adjustments (as of the period of adoption) would have met the definition of initial direct costs in ASC 842 at lease commencement, and the Company did not separate lease and non-lease components.

8


 

As a result of the adoption of the new lease accounting guidance using the effective date transition method, on January 1, 2019, the Company recognized (a) a lease liability of approximately $1.4 million, which represents the present value of the remaining lease payments, as of the date of adoption, of approximately $1.5 million, discounted using the Company’s incremental borrowing rate of 8.5%, and (b) a right-of-use asset of approximately $1.4 million. The adoption of the new standard did not result in any adjustment to the Company’s retained earnings as of January 1, 2019. The adoption of this standard did not have a material impact on the Company’s condensed consolidated balance sheets, cash used/provided from operating, investing, or financing activities in the condensed consolidated statements of cash flows, or on the Company’s operating results. The most significant impact was the recognition of right-of-use assets for operating leases, which are reflected in “Other non-current assets,” and lease liabilities for operating leases, which are reflected in “Accrued expenses and other current liabilities,” for the current portion of the lease liabilities, and in “Other long-term liabilities” for the non-current portion of the lease liabilities, respectively (See Note 11).

Segment Reporting

Operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision maker, or decision-making group, in making decisions on how to allocate resources and assess performance. Our chief operating decision maker is the chief executive officer. We have one operating segment, specialty pharmaceuticals within the respiratory system.

 

Fair Value of Financial Instruments

The accounting standard for fair value measurements provides a framework for measuring fair value and requires disclosures regarding fair value measurements. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, based on the Company’s principal or, in absence of a principal, most advantageous market for the specific asset or liability.

The Company uses a three-tier fair value hierarchy to classify and disclose all assets and liabilities measured at fair value on a recurring basis, as well as assets and liabilities measured at fair value on a non-recurring basis, in periods subsequent to their initial measurement. The hierarchy requires the Company to use observable inputs when available, and to minimize the use of unobservable inputs, when determining fair value.

The three tiers are defined as follows:

 

Level 1 – Observable inputs that reflect quoted market prices (unadjusted) for identical assets or liabilities in active markets;

 

Level 2 – Observable inputs other than quoted prices in active markets that are observable either directly or indirectly in the marketplace for identical or similar assets and liabilities; and

 

Level 3 – Unobservable inputs that are supported by little or no market data, which require the Company to develop its own assumptions.

Financial instruments carried at fair value include cash and cash equivalents, short-term investments, and foreign exchange derivatives not designated as hedging instruments.

Financial instruments not carried at fair value include accounts payable and accrued liabilities. The carrying amounts of these financial instruments approximate fair value due to the highly liquid nature of these short-term instruments.

 

Revenue Recognition

 

The Company will record revenue based on a five-step model in accordance with ASC 606, “Revenue from Contracts with Customers.” To date, the Company has not generated any product revenue from its drug candidates. The Company’s ability to generate product revenues, which the Company does not expect will occur in the near term, if ever, will depend heavily on the successful development, regulatory approval, and eventual commercialization of the Company’s product candidates.

Milestone Revenue

 

The Company is subject to a license agreement related to its Molgradex product candidate, which includes certain milestone payments to be remunerated by the licensee to Savara. In exchange, the Company granted the licensee an exclusive right to import, market, sell, distribute and promote Molgradex in Japan for the treatment of aPAP. Pursuant to the license agreement, the Company identifies the performance obligations, determines the transaction price, allocates the contract transaction price to the performance obligations, and recognizes the revenue when (or as) the performance obligation is satisfied. The Company identifies the performance obligations included within the license agreement and evaluates which performance obligations are distinct.

 

9


 

The milestone payments are a form of variable consideration as the payments are contingent upon achievement of a substantive event. The milestone payments are estimated and included in the transaction price when the Company determines, under the variable consideration constraint, that it is probable that there will not be a significant reversal of cumulative revenue recognized in future periods. The transaction price is then allocated to each performance obligation on a relative stand-alone selling price basis, for which the Company recognizes revenue as or when the performance obligations under the contract are satisfied. At the end of each subsequent reporting period, the Company re-evaluates the probability of achievement of such milestones and any related constraint, and if necessary, adjusts the estimate of the overall transaction price.

 

In October 2018, the Company achieved a milestone payment pursuant to this license agreement resulting in the receipt of $0.3 million from the licensee. As of March 31, 2020, the Company has determined that it has not met all of the performance obligations under this license agreement and, accordingly, has recorded the milestone payment as deferred revenue in “Accrued expenses and other current liabilities” in the Company’s condensed consolidated balance sheet until such time the performance obligations are met. On February 21, 2020, the Company received notification from the licensee of its intent to terminate this license agreement. Accordingly, this license agreement shall terminate on August 21, 2020 upon which the Company shall recognize revenue related to this $0.3 million milestone payment.

Net Loss per Share

Basic net loss attributable to common stockholders per share is calculated by dividing the net loss attributable to common stockholders by the weighted average number of shares of common stock and pre-funded warrants outstanding during the period without consideration of common stock equivalents. Since the Company was in a loss position for all periods presented, diluted net loss per share is the same as basic net loss per share for all periods presented as the inclusion of all potential dilutive securities would have been antidilutive.

Stock-Based Compensation

The Company recognizes the cost of stock-based awards granted to employees based on the estimated grant-date fair value of the awards. The value of the portion of the award that is ultimately expected to vest is recognized as expense ratably over the requisite service period. The Company recognizes the compensation costs for awards that vest over several years on a straight-line basis over the vesting period (see Note 12). Forfeitures are recognized when they occur, which may result in the reversal of compensation costs in subsequent periods as the forfeitures arise.

Manufacturing, Development, and Other Commitments and Contingencies

The Company is subject to various royalties and manufacturing and development payments related to its product candidates, Molgradex and Apulmiq. Under a manufacture and supply agreement with the active pharmaceutical ingredients (“API”) manufacturer for Molgradex, Savara must make certain payments to the API manufacturer upon achievement of the milestones outlined in the table set forth below. Additionally, upon first receipt of marketing approval by Savara from a regulatory authority in a country for a product containing the API for therapeutic use in humans and ending the earlier of (i) ten (10) years thereafter or (ii) the date a biosimilar of such product is first sold in such country, Savara shall pay the API manufacturer a royalty equal to low-single digits of the net sales in that country.   

  

Under a license and collaboration agreement for the rights to develop and commercialize Apulmiq, the Company is subject to certain contingent development payments and contingent sales payments due to the licensor upon the achievement of certain milestones up to amounts as set forth in the following table (see Note 7). The Company will also owe the licensor low double-digit tiered royalties based on annual global net sales of licensed products (on a product-by-product basis), which are subject to reduction if another inhaled ciprofloxacin product is introduced into the market.

Under an agreement with a medical education and research foundation entered into on October 8, 2018, the Company is subject to a milestone payment for the use of proprietary information and material in intellectual property filings related to the application of Molgradex in the treatment of NTM. The Company will owe royalties to the foundation based on net sales of Molgradex for the treatment of NTM equal to one half of one percent (0.5%) after publication of the intellectual property filings and one quarter of one percent (0.25%) prior to the publication or in the event publication does not occur, with respect to the specified intellectual property filings.

10


 

The Company is also subject to certain contingent milestone payments, disclosed in the following table, payable to the manufacturer of the nebulizer used to administer Molgradex. The change in the amount of the milestone payments from December 31, 2019 to March 31, 2020 was related to changes in foreign currency exchange rates and the accrual of a milestone equal to approximately $0.2 million due to the completion of our Phase 2a study of the use of Molgradex for the treatment of NTM in patients not affected by CF. Furthermore, milestone payments totaling 4.3 million euros relate to types of nebulizer delivery systems that are not currently being utilized in any of the studies in our development pipeline. In addition to these milestones, the Company will owe a royalty to the manufacturer of the nebulizer based on net sales. The royalty rate ranges from three-and one-half percent (3.5%) to five percent (5%) depending on the device technology used by the Company to administer the product.

 

Manufacturing, Development, and Other Contingent Milestone Payments (in thousands):

 

 

 

March 31, 2020

 

Molgradex API manufacturer:

 

 

 

 

Achievement of certain milestones related to validation

    of API and regulatory approval of Molgradex

 

$

2,300

 

Molgradex nebulizer manufacturer:

 

 

 

 

Achievement of various development activities and

    regulatory approval of nebulizer utilized to administer

    Molgradex

 

 

7,331

 

Medical education and research foundation (Molgradex):

 

 

 

 

First commercial sale in the U.S. of Molgradex in treatment

    of NTM

 

 

500

 

Apulmiq Licensor:

 

 

 

 

Achievement of various development activities and

    regulatory approval of Apulmiq for the treatment of NCFB

 

 

50,000

 

Achievement of various sales activities of Apulmiq for

    treatment of NCFB

 

 

100,000

 

Total manufacturing and other commitments

 

$

160,131

 

 

The milestone commitments disclosed above reflect the activities that have (i) not been met or incurred; (ii) not been remunerated; and (iii) not accrued, as the activities are not deemed probable or reasonably estimable, as of March 31, 2020.

Income Taxes

The Company uses the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the carrying amounts and the tax basis of assets and liabilities. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect of a change in tax rates on deferred tax assets and liabilities will be recognized in the period that includes the enactment date. A valuation allowance is established against the deferred tax assets to reduce their carrying value to an amount that is more likely than not to be realized.

Recent Accounting Pronouncements

In February 2020, the FASB issued ASU 2020-02, “Financial Instruments—Credit Losses (Topic 326) and Leases (Topic 842)—Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 119 and Update to SEC Section on Effective Date Related to Accounting Standards Update 2016-02, Leases (Topic 842) (SEC Update).” The company has reviewed ASU 2020-02 and concluded that it does not have a material impact on our condensed consolidated financial statements.

In March 2020, the FASB issued ASU 2020-03, “Codification Improvements to Financial Instruments,” which addressed various issues including the following: (i) clarification that all entities are required to provide the (“ASU 2020-03”) fair value option disclosures in paragraphs 825-10-50-24 through 50-32 of the FASB’s ASC, (ii) clarification that the contractual term of a net investment in a lease determined in accordance with ASC 842, “Leases,” should be the contractual term used to measure expected credit losses under ASC 326, “Financial Instruments – Credit Losses,” and (iii) amendment of ASC 860-20, “Transfers and Servicing – Sales of Financial Assets,” clarifying that when an entity regains control of financial assets sold, an allowance for credit losses should be recorded in accordance with ASC 326. The Company has reviewed ASU 2020-3 and concluded that it does not have a material impact on our condensed consolidated financial statements.

11


 

In March 2020, the FASB issued ASU 2020-04, “Reference Rate Reform (Topic 848)” which provides optional guidance for a limited period of time to ease the potential burden in accounting for the effects of the transition away from LIBOR and other reference rates.” The company has reviewed ASU 2020-04 and concluded that it has no impact on our condensed consolidated financial statements.

 

3. Prepaid expenses and other current assets

Prepaid expenses consisted of (in thousands):

 

 

 

March 31,

2020

 

 

December 31,

2019

 

R&D tax credit receivable

 

$

1,233

 

 

$

1,253

 

Prepaid contracted research and development costs

 

 

422

 

 

 

184

 

VAT receivable

 

 

356

 

 

 

364

 

Prepaid insurance

 

 

86

 

 

 

247

 

Foreign currency exchange derivative

 

 

 

 

 

7

 

Deposits and other

 

 

361

 

 

 

251

 

Total prepaid expenses and other current assets

 

$

2,458

 

 

$

2,306

 

 

 

4. Accrued expenses and other current liabilities

Accrued expenses and other current liabilities consisted of (in thousands):

 

 

 

March 31,

2020

 

 

December 31,

2019

 

Accrued contracted research and development costs

 

$

2,100

 

 

$

2,018

 

Accrued general and administrative costs

 

 

820

 

 

 

1,710

 

Accrued closing costs for previous issuance of securities in

  private placement

 

 

120

 

 

 

 

Accrued compensation

 

 

705

 

 

 

1,303

 

Foreign currency exchange derivative

 

 

88

 

 

 

 

Deferred revenue

 

 

238

 

 

 

 

Common stock due for in-licensing of development

  and commercialization rights

 

 

2,120

 

 

 

 

Lease liability

 

 

311

 

 

 

440

 

Total accrued expenses and other current liabilities

 

$

6,502

 

 

$

5,471

 

 

12


 

5. Short-term Investments

The Company’s investment policy seeks to preserve capital and maintain sufficient liquidity to meet operational and other needs of the business. The following table summarizes, by major security type, the Company’s investments (in thousands):

 

As of March 31, 2020

 

Amortized Cost

 

 

Gross Unrealized Gains

 

 

Gross Unrealized Losses

 

 

Fair Value

 

Short-term investments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. government securities

 

$

15,624

 

 

$

121

 

 

$

 

 

$

15,745

 

Asset backed securities

 

 

3,027

 

 

 

 

 

 

 

 

 

3,027

 

Corporate securities

 

 

25,395

 

 

 

6

 

 

 

(62

)

 

 

25,339

 

Commercial paper

 

 

26,361

 

 

 

 

 

 

 

 

 

26,361

 

Total short-term investments

 

$

70,407

 

 

$

127

 

 

$

(62

)

 

$

70,472

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of December 31, 2019

 

Amortized Cost

 

 

Gross Unrealized Gains

 

 

Gross Unrealized Losses

 

 

Fair Value

 

Short-term investments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. government securities

 

$

15,629

 

 

$

11

 

 

$

(2

)

 

$

15,638

 

Asset backed securities

 

 

8,789

 

 

 

10

 

 

 

 

 

 

8,799

 

Corporate securities

 

 

30,556

 

 

 

30

 

 

 

(1

)

 

 

30,585

 

Commercial paper

 

 

16,935

 

 

 

 

 

 

 

 

 

16,935

 

Total short-term investments

 

$

71,909

 

 

$

51

 

 

$

(3

)

 

$

71,957

 

 

The Company has classified its investments as available-for-sale securities. These securities are carried at estimated fair value with the aggregate unrealized gains and losses related to these investments reflected as a part of “Accumulated other comprehensive income (loss)” in the condensed consolidated balance sheets. Classification as short-term or long-term is based upon whether the maturity of the debt securities is less than or greater than twelve months.  

There were no significant realized gains or losses related to investments for the three months ended March 31, 2020 and March 31, 2019.

 

6. Debt Facility

On April 28, 2017, the Company entered into a loan and security agreement with Silicon Valley Bank, as amended on October 31, 2017 and December 4, 2018 (the “Loan Agreement”). The Company executed a third amendment (the “Third Amendment”) to the Loan Agreement on January 31, 2020, which provides for a $25 million term debt facility. The Third Amendment extends the interest-only period of the loan repayment through June 30, 2022, with payments thereafter in equal monthly installments of principal plus interest over 18 months. However, if by March 31, 2021, the Company does not have an ongoing Phase 3 or Phase 4 clinical trial evaluating its Molgradex product for the treatment of aPAP in which the first patient has been dosed, the interest-only period will end and principal plus interest will be due in equal monthly installments over 24 months beginning on April 1, 2021.

Following the effective date of the Third Amendment, the Company was required to pay a portion of the end of period charge equal to $0.5 million under the Loan Agreement to Silicon Valley Bank. The loans bear interest at the greater of (i) the prime rate reported in The Wall Street Journal, plus a spread of 3.0% or (ii) 7.75%. The Loan Agreement, as amended by the Third Amendment (the “Amended Loan Agreement”) will also require a prepayment fee (2.0% of funded amounts in months 13-24, and 1.0% thereafter), and an end of term charge equal to 6.0% of the amount of principal borrowed.

Silicon Valley Bank has been granted a perfected first priority lien in all of our assets with a negative pledge on our intellectual property. The Amended Loan Agreement contains customary affirmative and negative covenants, including among others, covenants limiting our ability and our subsidiaries’ ability to dispose of assets, permit a change in control, merge or consolidate, make acquisitions, incur indebtedness, grant liens, make investments, make certain restricted payments and enter into transactions with affiliates, in each case subject to certain exceptions. In addition, the Amended Loan Agreement contains an affirmative covenant requiring Savara to deliver evidence by June 30, 2021, of the receipt of gross cash proceeds of at least $25 million from the exercise of currently outstanding warrants or the issuance of other equity securities.

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Pursuant to the execution and funding of the Loan Agreement and subsequent amendments, the Company issued Silicon Valley Bank and its affiliate warrants to purchase (i) 24,725 shares of the Company’s common stock at an exercise price of $9.10 per share, with a ten-year life, expiring April 28, 2027 (“April 2017 Warrants”); (ii) 41,736 shares of the Company’s common stock at an exercise price of $5.39 per share with a ten-year life, expiring June 15, 2027 (“June 2017 Warrants”); and (iii) 11,332 shares of the Company’s common stock at an exercise price of $8.824 per share, with a ten-year life, expiring December 4, 2028 (“December 2018 Warrants”). The warrants were valued using the Black-Scholes-Merton option pricing model at the respective issue date, and the collective fair value of the warrants has been recorded as a debt discount which is being amortized through interest expense using the effective interest method through the scheduled maturity date.

In connection with the execution of the Third Amendment, the Company entered into amendments to each of the outstanding warrants previously issued to Silicon Valley Bank and its affiliate, totaling 77,793 shares, to amend the exercise price to be $2.87 per share. That amendment results in a minimal incremental increase to the fair value of these warrants, determined in accordance with the Black-Scholes-Merton option pricing model and ASC 718-20-55, which has been recognized as interest expense.

The Company paid minimal legal costs directly attributable to the original issuance of the debt instrument underlying the Loan Agreement and subsequent amendments. Such charges were accounted for as debt issuance costs and are being amortized to interest expense using the effective interest method through the scheduled maturity date.

The Company has analyzed the Third Loan Amendment and concluded that the debt restructuring results in modification accounting under ASC 470 “Simplifying the Classification of Debt in a Classified Balance Sheet (Current versus Noncurrent).”

Summary of Carrying Value

The following table summarizes the components of the debt facility carrying value, which approximates the fair value (in thousands):

 

 

 

As of March 31, 2020

 

 

 

Short-term

 

 

Long-term

 

Principal payments to lender and end of term charge

 

$

 

 

$

25,064

 

Debt Issuance costs

 

 

 

 

 

$

(189

)

Debt discount related to warrants

 

 

 

 

 

(144

)

Carrying Value

 

$

 

 

$

24,731

 

 

The carrying value of the debt facility approximates fair value.

7. Apulmiq License Agreement

 

On January 7, 2020, the Company entered into a license and collaboration agreement with Grifols, S.A., a company organized under the laws of Spain (“Grifols”), which was subsequently amended on February 18, 2020 and March 31, 2020 (the “License”). On March 31, 2020, the final condition precedent to the effectiveness of the License was satisfied, and the License became effective.

The License provides Savara with an exclusive, worldwide, royalty-bearing license, with rights to sublicense, patent rights owned or controlled by Grifols (the “Grifols Patents”) and know-how owned or controlled by Grifols to make, have made, use, develop, import and export, supply, offer for sale, and sell or otherwise commercialize pharmaceutical preparations containing ciprofloxacin in a liposomal formulation and/or ciprofloxacin that is not encapsulated in liposomes (each such pharmaceutical preparation a “Licensed Product”) for all uses.

Under the License, the Company has sole responsibility for the activities and costs related to the development of (1) a Licensed Product for the treatment of either NCFB or pulmonary infections associated with NCFB (the “Initial Indication”) and (2) any Licensed Product for another indication, of which none are currently approved, (an “Additional Indication”), including the conduct of a confirmatory Phase 3 clinical trial in the Initial Indication. The Company is responsible for all regulatory and commercialization activities and the associated costs for each Licensed Product and is obligated to use Diligent Efforts (as defined in the License) to obtain regulatory approval in the U.S. and E.U. of a Licensed Product in the Initial Indication and any Additional Indications.

14


 

The Company agreed to pay Grifols (i) an upfront cash payment of approximately $3.3 million and (ii) an upfront payment of one million shares of the Company’s common stock valued at approximately $2.1 million on the date of issuance (the “Consideration Shares”) upon effectiveness of the License, (collectively the “Upfront Payments”). The Company also agreed to pay Grifols (i) certain developmental milestone payments totaling up to $50 million for the development of the Licensed Products for the treatment of NCFB upon approval of a Licensed Product for commercial sale by the FDA and EMA and (ii) certain sales milestone payments totaling up to $100 million upon the first achievement of annual global net sales of (a) $100 million, (b) $300 million, and (c) $500 million (collectively, the “Contingent Consideration”). Additionally, the Company agreed to pay Grifols low double-digit tiered royalties based on annual global net sales of all Licensed Products, which are subject to reduction if another inhaled ciprofloxacin product is introduced into the market. The Company is obligated to make such royalty payments on a country-by-country and Licensed Product-by-Licensed Product basis until the later of (i) ten (10) years after the first commercial sale of a Licensed Product in a country, (ii) expiration of the last Grifols Patent covering that Licensed Product in that country, or (iii) the date a generic inhaled liposomal ciprofloxacin is introduced in that country (the “Royalty Term”). At the end of the Royalty Term, the Company will have a fully paid-up license for the applicable Licensed Product.

The Company has accounted for the License as an asset acquisition in accordance with ASU 2017-01 “Business Combinations (Topic 805) - Clarifying the Definition of a Business” and ASC 805 “Business Combinations.” Since the Licensed Product has not yet achieved regulatory approval and there is deemed to be no alternative future use, the Company has recorded research and development expense of approximately $5.4 million for the Upfront Payments.

The Company has determined that the Contingent Consideration is currently neither probable nor can the amount be reasonably estimated, and therefore, no related liability has been recorded as of March 31, 2020.  

The term of the License continues until the Royalty Term expires in all countries for all Licensed Products. Grifols may terminate the License immediately if (i) the Company or one of its affiliates files a challenge to a Grifols Patent or (ii) the Company fails to develop Licensed Products or execute its Development Plan (as defined in the License) by failing to allocate material funds, full-time equivalents and resources for twelve (12) consecutive months (net of any delay due to force majeure). Either party can terminate for the other party’s material breach following a cure period or upon certain insolvency events. The License also contains customary representations, warranties, mutual indemnities, limitations of liability, and confidentiality provisions.

The Company also incurred approximately $0.5 million in legal fees in conjunction with the License of which $0.3 million and $0.2 million were incurred and expensed in the year ended December 31, 2019 and during the three months ended March 31, 2020, respectively.

 

 

8. Fair Value Measurements

The Company measures and reports certain financial instruments at fair value on a recurring basis and evaluates its financial instruments subject to fair value measurements on a recurring basis to determine the appropriate level in which to classify them in each reporting period.

 

The Company determined that certain investments in debt securities classified as available-for-sale securities were Level 1 financial instruments.  

 

Additional investments in corporate debt securities, commercial paper, and asset-backed securities are considered Level 2 financial instruments because the Company has access to quoted prices but does not have visibility to the volume and frequency of trading for all of these investments. For the Company’s investments, a market approach is used for recurring fair value measurements and the valuation techniques use inputs that are observable, or can be corroborated by observable data, in an active marketplace.

 

Foreign exchange derivatives not designated as hedging instruments are considered Level 2 financial instruments. The Company’s foreign exchange derivative instruments are typically short-term in nature.

 

15


 

The fair value of these instruments as of March 31, 2020 and December 31, 2019 was as follows (in thousands):

 

 

 

Quoted Prices in

Active Markets for

Identical Assets

(Level 1)

 

 

Significant

Other

Observable

Inputs

(Level 2)

 

 

Significant

Unobservable

Inputs

(Level 3)

 

As of March 31, 2020

 

 

 

 

 

 

 

 

 

 

 

 

Cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury money market funds

 

$

30,268

 

 

$

 

 

$

 

Short-term investments:

 

 

 

 

 

 

 

 

 

 

 

 

U.S. government securities

 

$

15,745

 

 

$

 

 

$

 

Asset backed securities

 

 

 

 

 

3,027

 

 

 

 

Corporate securities

 

 

 

 

 

25,339

 

 

 

 

Commercial paper

 

 

 

 

 

26,361

 

 

 

 

Other liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

Foreign exchange derivatives not designated as hedging instruments

 

$

 

 

$

88

 

 

$

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of December 31, 2019

 

 

 

 

 

 

 

 

 

 

 

 

Cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury money market funds

 

$

13,530

 

 

$

 

 

$

 

Repurchase agreements

 

 

 

 

 

6,000

 

 

 

 

Short-term investments:

 

 

 

 

 

 

 

 

 

 

 

 

U.S. government securities

 

$

15,638

 

 

$

 

 

$

 

Asset backed securities

 

 

 

 

 

8,799

 

 

 

 

Corporate securities

 

 

 

 

 

30,585

 

 

 

 

Commercial paper