SVRA - NASDAQ

Ioana Hone - Head, IR Rob Neville - CEO Dave Lowrance - CFO Taneli Jouhikainen - President and COO

Dewey Steadman - Canaccord David Steinberg - Jefferies Michael Higgins - Roth Capital Partners

Good day. And welcome to the Savara Incorporated Third Quarter 2017 Financial Results and Business Update Conference Call. At this time, all participants are in listen-only-mode. An audio webcast of this call is available on the Investors section of Savara’s website at www.savarapharma.com. This call is subject to copyright property of Savara incorporated, and recordings, reproduction or transmission of this call without expressed written consent of Savara Incorporated is strictly prohibited. As a reminder, today’s call is being recorded. After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] I would now like to turn the conference over to Ioana Hone, Head of Investor Relations at Savara Incorporated.

Thank you, Phil. Good afternoon and thank you for joining us on the call. A press release reporting our third quarter 2017 financial results was issued earlier today November 8, 2017 and can be found on the Investors section of our website at www.savarapharma.com. Tomorrow morning, we will release a new CEO blog post on our website. Please note that today’s conference call and webcast will contain forward-looking statements within the meaning of federal securities laws including statements regarding our strategies, goals product candidates, clinical trials and financing matters. Such statements are subject to significant risks and uncertainties including those described in our press release issued on Wednesday, November 8, 2017, and our SEC filings on Form 8-K Form, 10-K and Form 10-Q. Actual results or performance may differ materially from the expectations indicated by our forward-looking statements due to those risks and uncertainties. We caution you not to place undue reliance on any of the forward-looking statements which speak only as of today. With that, I’d like to turn the call over to Rob Neville, CEO of Savara.

Thank you, Ioana, and good afternoon everybody. I’m very excited to be with you today, and thank you for joining us. And with me here in Austin, Texas is Dave Lowrance, our Chief Financial Officer, and Taneli Jouhikainen, our President and Chief Operating Officer is joining us from Europe, dialing in, and he will be available for the Q&A portion of our call. As most of you’ve seen, third quarter has been incredibly productive for us, and we’ve continued to execute on our key programs and growth plan in are joining to build Savara into a prominent orphan lung disease company. And let me jump straight in and briefly discuss a few of our recent accomplishments. I’d like to spend most of our time discussing Molgradex expansion into NTM and why this is such an exciting opportunity for us. And first, before I cover our active programs, let me provide an update on vepoloxamer; and perhaps of interest to our prior Mast shareholders, we recently entered into an agreement [ph] for the exclusive worldwide rights to develop and commercialize that vepoloxamer, an asset that was initially developed by Mast Therapeutics for the treatment of the individuals with sickle cell disease. Under the terms of the agreement, we are entitled to an upfront -- nominal upfront payment as well as milestone and royalty payments from the future sales of vepoloxamer. Now, if vepoloxamer does not fit with our strategy, then we’re pleased to be able to out-license the program to an organization with the expertise and interest in its continued development into an undisclosed indication. Second, an update on Aironite, our inhaled sodium nitrite solution for heart failure with preserved ejection fraction, or HFpEF. Patient enrollment has been completed partly ahead of schedule in this study and which is a multicenter 100-patient randomized double blind placebo controlled Phase 2 clinical trial. According to our prior guidance, we expect the top line results will be available in the first half of 2018. Third, an update on AeroVanc, which is the first inhaled antibiotic being developed for the treatment of persistent MRSA lung infection in individuals with cystic fibrosis. In September of this year, we began enrolling patients in our Phase 3 AVAIL study in line with our prior guidance. The AVAIL is randomized double blind placebo controlled study and we will enroll approximately 200 subjects to 75% of which are children age 20 years or younger at more than 80 clinical study sites across the U.S. and Canada. We look forward to providing additional updates on AeroVanc program including enrollment update as it become available. We have not yet given guidance on anticipated timing of the AVAIL study top line results. We plan to do so when all sites are active and we’ve gathered some additional enrollment data. I’d like to now discuss important update related to our lead program Molgradex which we’ve been primarily developing for patients with autoimmune PAP, but we are now also expanding into a new promising indication in nontuberculous mycobacteria or NTM lung infection. In PAP, we are currently conducting a pivotal Phase 3 clinical trial called IMPALA study. The study was originally design for the EU and Japanese territories but was expanded over this year to also satisfy the FDA requirements and accordingly has now considered a pivotal study for major territories including the U.S. The IMPALA study continues to enroll steadily with more than 70% of the 90 patients now enrolled and top line results are expected late in 2018. As a key development for the past quarter, I’d like to discuss some more detailed indication expansion of Molgradex for the treatment of NTM along with our latest public offering. This indication expansion strategy is extremely exciting to us as we believe Molgradex has the potential to help eradicate NTM lung infection with or without the concomitant use of antibiotics by stimulating the innate immune system in the lungs. And as background, NTM lung infection is rare serious lung disorder associated with increased rates of morbidity and mortality. NTM infection can occur when an individual inhales the organism from the environment and if not adequately treated, the infection may become chronic and developments are slowly progressive and destructive lung disease. NTM lung infection is a considered therapeutic challenge due to the unique ability of these bacteria to evade the normal killing mechanisms of alveolar macrophages, a type of immune cells responsible for killing and clearing bacteria in the lungs. Unlike most other bacteria, NTM are able to survive and multiply in alveolar macrophages, which facilitate the developments of chronic infection and also makes the bacteria less susceptible to normal antibody treatment. Chronic NTM lung infection can have significant impacts on quality of life. More than 50,000 individuals are affected by NTM lung infection in the U.S., the most common specie is being mycobacterium avium complex or MAC and the more problematic mycobacterium abscessus complex or M. abscessus. Pulmonary NTM infection pose an increasing problem for clinicians and treatment is difficult requiring the use the use of multi-drug antibody regimens with significant burden, toxicity and frequent failure of achieving eradication. There have been few advancements in treatments for NTM in the past decade. However, in the recent Phase 3 clinical trial conducted by Insmed, an inhaled form of amikacin was shown to be effective in approximately one-third of treatment refractory patients with pulmonary MAC infection. Where these results represent a much needed advancements in NTM treatments, new and more effective treatments are still urgently needed and especially for patients with the more difficult form NTM species M. abscessus. Notably, for Savara, there is increasing scientific literature suggesting that GM-CSF plays an important role in enhancing the ability of macrophages to clear mycobacteria. GM-CSF is not an antibiotic, it’s a immune stimulant targeting the human immune response, not the bacteria directly thus avoiding the increased problem of antibiotic resistance. In animal study, GM-CSF has been shown to cure NTM with similar efficacy compared to commonly used NTM antibiotics. And the simultaneous use of GM-CSF with antibiotics may further improve the antibacterial effect. Most importantly, in some very recent thus far unpublished clinical case reports in CF patients inhaled GM-CSF was shown to either eradicate or dramatically reduce the bacterial burden in patients with refractory M. abscessus lung infection. Together with the strong scientific rationale, these very promising case reports confirm to us that the potential therapeutic role GM-CSF in NTM lung infection definitely warrants more intensive investigation and motivate us to pursue a Phase 3 study in this indication. We’re now preparing to initiate a 50-patient open-label Phase 2a study early next year. The clinical trial will consist of 24 weeks of treatment and a 12-week follow-up period. The primary endpoint will be sputum culture conversion to negative and key secondary endpoints will include other microbiological endpoints as well as functional and symptomatic endpoints. The result of the study will be used to inform us in terms of how to plan a well-controlled Phase 2b study with adequate design endpoints and sample size to qualify for supported study and an NDA filing. We believe the product will be eligible for orphan and qualified infectious disease status. And if the results of the open-label study meet our expectations, we believe the product will also have the potential to be considered to receive the FDA breakthrough therapy designation. On October 25, in conjunction with our expansion of Molgradex into NTM, we announced the successful processing of a public offering of approximately $50 million in net proceeds led by experienced institutional healthcare investors. Earlier in June this year, we announced a $43 million financing but it’s important to note that this initial offering was largely designated to support the development of our two Phase 3 programs in PAP and CF. With the closing of this latest offering, we believe we’re now sufficiently resourced to also pursue the NTM opportunity with sufficient funds to execute our current business plan into 2020. And let me hand the call over to Dave Lowrance, our CFO, who will discuss our third quarter 2017 financial results.

Thanks, Rob, and good afternoon, everyone. First, let me begin by highlighting a couple of our recent accomplishments. In October, our common stock was uplifted to the Nasdaq Global Select Market, which has the highest initial listing standards of any of the world’s stock markets. Also in October, as Rob noted earlier, Savara closed a public offering with net proceeds of approximately $50 million, which included the full exercise of the underwriters’ option to purchase additional shares. I’m also pleased to note we’re now covered by four well-known research analysts from Jefferies, JMP Securities, Canaccord Genuity and Roth Capital Partners. Now, with respect to our third quarter 2017 financial statistics. As of September 30, 2017, Savara had cash, cash equivalents, and short-term investments of approximately $53.3 million, and ended the third quarter of 2017 with approximately $14.7 million in debt. The Company’s operating expenses for the third quarter of 2017 were approximately $6.5 million. Savara’s net loss attributable to common shareholders for the three months ended September 30, 2017 was $6.8 million or $0.28 net loss per share, compared with a net loss attributable to common shareholders of $3.3 million or $1.21 net loss per share for the third quarter of 2016, which represents the historical financial information of the private company Savara, Inc., which completed its merger with Mast Therapeutics on April 27, 2017. Our research and development expenses were $5 million for the three months ended September 30, 2017, compared with $2.1 million for the third quarter of 2016. The increase was primarily due to the funding of the Molgradex Phase 3 study, which we acquired from Serendex in July 2016 and the initiation of our AeroVanc Phase 3 study. General and administrative expenses for the three months ended September 30, 2017 were $1.5 million compared with $1 million for the third quarter of 2016. Here, the increase was primarily due to increased insurance, legal and accounting costs associated with public company requirements and activities as well as increased personnel costs. Our goal has been and will continue to be one of fiscal discipline, executing our clinical studies in a cost-effective manner. It is important for us to balance the need to develop our product candidates as quickly as possible while managing the financial impact of our decisions. As Rob mentioned earlier, following the close of two public offerings, one in June and one in October of this year, we believe the Company is now sufficiently funded to execute our current business plan into 2020. Now, let me hand the call back to Rob.

Thanks, Dave. I’m incredibly excited about the progress our team continues to make with more of the same expecting going forward. We remain very focused on delivering on our stated milestones and goals as you’ve likely started to see. Some key upcoming clinical milestones look forward to include first of all completing patient enrollment in our pivotal Phase 3 study of Molgradex in PAP expected in the first quarter of 2018; secondly, initiating our Phase 2a study of Molgradex NTM lung infection in early 2018, furthermore announcing the results of our Phase 2 INDIE HFpEF study of Aironite in the first half of 2018 followed by top line results of our pivotal Phase 3 study of Molgradex in PAP expected in the late 2018. We believe we’re building an exceptional business and we are well-positioned to continue to grow the Company, positively impacting the patients we aim to treat, our shareholders invest in us and employees who make this all possible. We sincerely appreciate your continued support and look forward to keeping you updated through our various communication channels. Now, I’d like to turn the call back to the operator for any analyst questions.

Thank you. We will now begin the question-and-answer-session. [Operator Instructions] Our first question comes from Dewey Steadman with Canaccord. Please go ahead.

I guess, on the NTM, since it’s new to us, what are the lessons that you’ve learned through Insmed’s various trials in relation [ph] NTM program and how that influenced the design of the Phase 2a program? And then, also on NTM, are there opportunities outside of an [indiscernible] or refractory MAC to treat patients or do you want to stick with sort of a refractory or difficult label?

He, Dewey. Thanks for being on the call. I appreciate your question. I’m going to hand that over to Taneli.

Yes. Thanks Dewey for your questions. So, I suppose, the main learning from the Insmed intimate trials was that obviously eradication seems to be a great endpoint and also that success can be achieved using a local delivery approach. And so, this is of course very promising to us. That said our Phase 2a study is really a signal finding study. And this is going to be our major learning opportunity, so that we can then design the most appropriate Phase 2b study with the information’s we gain from this first one. In terms of your other question, what else could we treat or how often could we treat NTM infection, should we perhaps consider our program only for the refractory patients or maybe go close to first line. I think it is a little early to speculate on that but there is no theoretical or biological reason why we would only focus on refractory patients. That is where the highest unmet need is and I think this is therefore the priority for us to begin with.

And then, for Dave, I guess this is now your second quarter as a public company and we’ve seen R&D expense roughly between $4 million and $5 million. Is that a good rate to use going forward? And then, with SG&A similarly sort of bounced around, given some expenses in Q2 that don’t recur, but is 1.5 million a good SG&A rate to use until these products start getting approved?

This is Dave. I greatly appreciate the question. And what I would tell you is that obviously with two Phase 3 studies, plus other activities going on, you are never going to see the same quarter-over-quarter. What we have said is that given where we are at today, and we were confident that with our business plans set as it is, as Rob has described that we are -- we believe that we are sufficiently funded to get us into 2020, at this point.

Okay. The next question comes from Liisa Bayko with JMP Securities. please go ahead.

Hi. This is John on for Lisa. Congrats on all the progress and thanks for taking the question. Just a few for me. I was wondering if you can again update on the new manufacturing facility you’re going to have up and running for Molgradex?

Hey, Taneli, why don’t you take that one?

Sure. So, this is a technology transfer that we’re conducting at the moment over to Synco in the Netherlands. We’ve not really given any guidance on any specifics of that progress right now. What I would just like to summarize is that work is progressing quite well. There is still lots of work ahead of us. But, I would say at this point, nothing out of the preliminary.

Okay. And with enrollment up in your PAP study pretty soon, what’s the status of your IND in the U.S. and are you going to be able to get any U.S. patients from that study?

We do not yet know. Right now, we’re fairly steadily tracking towards our targeted enrollment goal that we’ve guided into first quarter. Right now, I do not know with uncertainty how many patients or if patients will be enrolled in the U.S. We have not yet submitted an IND.

Okay. And one last one for me. Looking at Molgradex and NTM, and obviously if Insmed does become available that might change the paradigm a little bit. But, how do you project something like Molgradex might be used? Is it something by itself in frontline or is it something combination with antibiotics? How should we think about use in that study?

Well, first of all, I think the Insmed product hopefully entering the market will give one additional tool for the antibiotics toolbox, but it will not in our opinion materially impact how Molgradex would be used. And so, we foresee our product to be used either together with antibiotics in patients who are still on antibiotics, when they’re not working alone, so that would be the refractory patients, little similar to how the Insmed inhaled amikacin would be used together with the regular other NTM drugs. But then, unlike most antibiotics, Molgradex could be also considered as a monotherapy in patients who either don’t tolerate the standard NTM antibiotics or have tried them and are unable to use -- or unwilling to use them rather, because they don’t really give them desired effect. But like I said earlier, we do see that this is going to be first developed into the refractory patients where the unmet need is much higher. But the perhaps then later on, we could very well see or envision Molgradex to become something that could be used earlier in the treatment as well.

Great. Thanks again for taking the questions. And congrats again on the progress.

The next question comes from David Steinberg with Jefferies. Please go ahead.

I was just wondering, could you discuss the dynamics with AV [ph] M. abscessus trends with NTM? And abscessus is a tougher bug, correct? And will the patient populations be stratified in the trial and what if it does well in one stream but not the other?

Taneli again, just take that question.

Yes. So, in the Phase 2a study, we will be enrolling both MAC and abscessus patients. We’re targeting roundabout 50-50 but we definitely don’t want to have more than half of the patients with M. abscessus where it could be that little more having MAC. And you’re right, as the abscessus is a tougher bug, and it is a bit of a nightmare for antibiotic treatments often. However, indication towards that have been encouraging, us to move ahead with this program and the success actually have been observed particular with M abscessus. And so that has been really encouraging. That said, we don’t believe biologically that there should be any reason why we wouldn’t see the same success in MAC patients. But right now, it’s too early to speculate which might be the more important stream for us.

And it seems a bit like immuno-therapy for infectious disease are there any precedence, and how novel is this concept to use a biologic immunostimulant to help fight infections?

Well, it is not really novel. I definitely can’t say that this wouldn’t be found in the literature already like decades ago. But, what has changed the landscape is the realization that these locally targeted treatments can actually make a big difference in treatment outcome. And so, as for NTM and the use of either interferon or [indiscernible], there are some clues in the literature already from years ago that this might be an effective strategy but really the availability of inhaled formulation I think will hopefully open up a bit of a new world in this type of treatment.

The next question comes from Michael Higgins with Roth Capital Partners. Please go ahead.

Question for you on Molgradex. When do you think the unpublished case studies may be published with inhaled GM-CSF effect and the M. abscessus that you’ve mentioned before?

That’s hard for me -- that’s hard to say. We do know that this is in process. But, I cannot really give you really any guidance on the speed of acceptance and publication.

Okay. Hopefully, we will see something, next spring. Another question on Molgradex. You’ve noted in the past that you plan to make formulation changes to Molgradex that would simplify the composition of the drug product and eliminate potentially harmful excipients. So, question is, where are you with that process in developing formulation?

Right now, this is not in the forefront of our development programs. The current plan is to continue using the existing formulation and to use that also for our requirement. [Ph] But these types of formulation work typically happen alongside with development, just to see if we could in fact have even better product down the line in the future.

And then, one on AeroVanc if I could. Any plans to expand AeroVanc in other indications, like you do with Molgradex, possibly tracheobronchitis, non-CF bronchiectasis or VAP? [Ph]

We have had plans over the years of different indications for AeroVanc as well. But I do want to highlight the fact that if one were to try use AeroVanc for track of tracheobronchitis or VAP of that would require total different delivery system. So, the current dry powder form and inhaler would not be suited for that but vancomycin certainly could be useful. Non-CF bronchiectasis would be a possibility and we might seek some guidance of how the FDA approaches these types of indications now that we can absorb what happens to the inhaled ciprofloxacin case and review by the FDA.

This concludes our question-and-answer session. I’d like to turn the conference back over to Rob Neville for any closing remarks.

That’s it. Thank you, Phil. Thank you everybody for your participation on today’s call. Goodbye.