SVRA - Molgramostim: Savara's Single Shot At Success

2023-09-13 09:34:50 ET

Summary

• Savara focuses on rare respiratory diseases, with lead product molgramostim in Phase 3 for autoimmune Pulmonary Alveolar Proteinosis (aPAP).
• Financially stable with $185.2M in liquidity, but increased R&D expenses signal a risky, all-in approach on molgramostim.
• Investment recommendation: "Hold" due to elevated risk and outcome dependency on Phase 3 results for molgramostim.

Introduction

Savara (SVRA) is a clinical-stage biopharmaceutical firm specializing in rare respiratory diseases. Based in Austin, Texas, its lead product, molgramostim, is in Phase 3 for treating autoimmune Pulmonary Alveolar Proteinosis (aPAP).

The following article analyzes Savara's financials, drug pipeline, and market prospects. It highlights the company's strong cash position and focuses on the Phase 3 trial of molgramostim for treating aPAP. It advises investor caution due to high risk.

Q2 Earnings Report

Looking at Savara's most recent earnings report , the company posted a net loss of $11.4M in Q2 2023, compared to a $9.2M loss in Q2 2022. R&D expenses saw a significant jump, rising 38.8% to $8.9M, mainly driven by the molgramostim program. General and administrative costs also increased by 11.7% to $3.3M due to new hires.

Cash Runway & Liquidity

Turning to Savara's balance sheet , the combined value of 'Cash and cash equivalents' and 'Short-term investments' as of June 30, 2023, stands at $105.2M ($22.7M in cash and $82.4M in short-term investments). Adding the $80M from the recent equity offering gives a pro-forma total liquidity of $185.2M. Net cash used in operating activities over the past six months was $22.3M, estimating a monthly cash burn of approximately $3.7M. The pro-forma monthly cash runway, based on this monthly cash burn, would be roughly 50 months. Keep in mind that these values and estimates are based on past data and may not be directly applicable to future performance.

In terms of liquidity, the $185.2M pro-forma figure places the company in a strong position. Savara holds long-term debt amounting to $26.2M, which appears manageable given the improved liquidity status. Considering the cash position and relatively low debt, the likelihood of securing additional financing, if needed, appears to be favorable. These are my personal observations, and other analysts might interpret the data differently.

Capital Structure, Growth, & Momentum

According to Seeking Alpha data, Savara's capital structure reveals moderate debt and a strong cash position relative to its market cap of $498.79M, resulting in an enterprise value of $419.75M. Despite negative EPS and zero revenue, the firm receives an A- growth rating, suggesting high growth prospects, particularly with its lead product, molgramostim. Analyst revenue projections anticipate $52.46M in 2025. Stock momentum is impressive, with significant outperformance against the S&P 500 over multiple time frames.

The Clinical Impact of Molgramostim on aPAP Outcomes

In the Phase 2 trial for autoimmune Pulmonary Alveolar Proteinosis (aPAP), molgramostim showed substantial promise, particularly when considering adjusted data. The initial results on the primary endpoint, the Alveolar-Arterial Difference in Oxygen Concentration (A-aDo2), appeared inconclusive. However, after removing invalid data from patients who had received supplemental oxygen, significant improvements emerged. Notably, the treatment group experienced a statistically significant increase in the diffusing capacity of the lung for carbon monoxide (DLCO) by 12.0 percentage points from baseline, compared to a 4.2 percentage point increase in the placebo group. The estimated treatment difference was 7.8 percentage points with a 95% confidence interval of 2.3 to 13.3.

This significant DLCO data informs the design of the fully enrolled Phase 3 IMPALA-2 trial , which has set DLCO as its primary endpoint and is slated to report top-line data by end of Q2 2024. Following American Thoracic Society/European Respiratory Society (ATS/ERS) guidelines, the 48-week placebo-controlled trial aims to corroborate Phase 2 findings. If successful, molgramostim could represent a major shift in aPAP treatment, offering a more effective and less invasive option than existing treatments like whole-lung lavage.

The U.S. market for aPAP is niche, with an estimated prevalence of 7 cases per million, per touchREVIEWS , in a population of approximately 331 million as of 2021, translating to around 2,317 patients. The limited market size poses challenges for drug development but also suggests opportunities for targeted, specialized treatments. Overall, given the statistically significant Phase 2 DLCO results and the targeted design of the Phase 3 IMPALA-2 trial, the future for molgramostim in aPAP treatment appears cautiously optimistic.

My Analysis & Recommendation

In summing up Savara's current position, investors are faced with a high-stakes game. While molgramostim's Phase 2 data suggests promise in aPAP treatment, it's important to recognize that Savara has essentially placed all its eggs in the aPAP basket. With no other drugs in the pipeline, the outcome of the Phase 3 IMPALA-2 trial becomes a binary event that could make or break the company.

The company's financial standing is robust at present, bolstered by the recent equity raise and a pro-forma total liquidity of $185.2M. This strong cash position may be comforting, but it should not obscure the inherent risk of a business model narrowly focused on a rare condition affecting an estimated 2,317 patients in the U.S.

While it's tempting to be swayed by growing institutional interest and a statistically significant Phase 2 DLCO result, investors should tread cautiously. The concentration of resources into a singular, niche market introduces a level of risk that shouldn't be underestimated. Notably, the small patient population means that even a successful drug launch may not guarantee substantial revenues, which calls into question the company's current market cap of nearly $500M.

Given these considerations, a "Hold" would be the prudent strategy at this juncture. The risk profile is elevated, and much rides on the upcoming Phase 3 results. If you're not already invested, it might not be the time to jump in. If you are holding shares, staying the course while bracing for Phase 3 data seems like the most balanced approach.

In the coming weeks and months, investors should keep an eye out for any interim analysis, partnerships, or indications of how the IMPALA-2 trial is progressing. Each of these could serve as either a red or green flag, tipping the risk-reward balance in a market waiting for any sign to tip the scales.

For further details see: