SVRA - NASDAQ

Ioana Hone - Head of Investor Relations Robert Neville - Chairman and Chief Executive Officer David Lowrance - Chief Financial Officer Taneli Jouhikainen - President and Chief Operating Officer

Dewey Steadman - Canaccord Genuity Inc. Liisa Bayko - JMP Securities David Steinberg - Jefferies LLC Michael Higgins - Ladenburg Thalmann & Co., Inc.

Good afternoon and welcome to the Savara Incorporated Conference Call. At this time, all participants are in listen-only mode. An audio webcast of this call will be available on the Investors Section of Savara’s website at www.savarapharma.com. This call is subject to copyright and it is a property of Savara, and recordings, reproduction or transmission of this call without the expressed written consent of Savara is strictly prohibited. As a reminder, today’s call is being recorded. I would now like to turn the conference over to Ioana Hone, Head of Investor Relations at Savara. Please go ahead.

Thanks, Phil. Good afternoon and thank you for joining us on the call. A press release reporting our fourth quarter and fiscal year-end 2017 financial results was issued earlier today, March 14, 2018 and can be found on the Investors Section of our website at www.savarapharma.com. Please note 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, March 14, 2018, and our recent 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 those forward-looking statements which speak only as of today. With that, I would like to turn the call over to Rob Neville, Chief Executive Officer of Savara.

Thank you, Ioana, and good afternoon, everybody. I am very excited to be with you today. Thank you for joining us. I am actually traveling, and therefore, dialing in remotely. So I do apologize if the call quality is not crystal clear. On the line with me back at Savara in Austin, Texas are Taneli Jouhikainen, our President and Chief Operating Officer; as well as Dave Lowrance, our Chief Financial Officer. Before we get started, I want to provide a little insight into what drives us at Savara. As I mentioned in my blog, for those of us who are in good health we take breathing for granted. But for patients with impaired lungs, nothing else, but breathing really matters. We believe there are more than a 100 identified rare lung diseases, but maybe 2 million Americans living with the rare lung diseases. We therefore feel that there is a compelling opportunity in front of us. Not just in the ability to impact the lives of these patients. [Of course] [ph] it’s a fertile soil upon which we will build a preeminent orphan lung diseases company. 2017 was a transformative year in many ways for us and serves as a great foundation for our continued growth. On the capital markets front, we accomplished two successful public offerings of approximately 100 million from a number of well-known institutional and strategic investors. We now have four covering analyst, including Dave Steinberg with Jeffries; Liisa Bayko with JMP; Dewey Steadman with Canaccord; and Michael Higgins with Ladenburg. Savara’s common stock was also uplifted to the NASDAQ Global Select Market and added to the NASDAQ Biotechnology Index. On the clinical development front, we significantly advanced two lead programs Molgradex and AeroVanc into Phase III developments in pulmonary alveolar proteinosis or PAP and cystic fibrosis or CF respectively. We also expanded the Molgradex program into a new and exciting indication opportunity, nontuberculous mycobacterial lung infection or NTM. Additionally, we received the Cystic Fibrosis Foundation’s continued support and strong validation of our AeroVanc program with a $5 million award to advance our Phase III development assets. We have also continued to grow our team in order to effectively manage the expanding activities in our programs, including the expansion of the Molgradex study into the U.S., the indication expansion of NTM, commercial manufacture activities for both AeroVanc and Molgradex, the pending preparation for NDA submissions, and the initiation of our pre-commercial activities. With three clinical studies ongoing, our focus in 2018 will be on the continued advancement of our core programs, while actively exploring further expansion of our pipeline. I’ll now hand the call over to Taneli to delve further into the progress of our core programs in more detail.

Thank you, Rob, and good afternoon, everybody. Let me begin with our lead product candidate, Molgradex our inhaled form of GM-CSF. I am very pleased to say we have continued to make great progress with our pivotal Phase III IMPALA study for the treatment of PAP, having reached our original enrollment target of 90 patients almost two months ahead of our guidance. As a reminder, last year we announced our expedited U.S. development strategy for Molgradex, which enables the ongoing IMPALA study to serve as a pivotal study also for U.S. registration purposes. This was obviously a big win for us. In December of last year, we submitted an IND application to the FDA in order to open U.S. sites for the IMPALA study and thereby to complete the enrollment with patients from all major territories, including the U.S., EU, and Japan. The IND submission also added a blinded interim check of variability of the key secondary endpoints, designed to provide an opportunity to confirm or modify if necessary the study sample size. Last month, the FDA approved our IND application and so with the U.S. now also included, the study is being conducted in 20 countries globally. The primary endpoint of the study is the alveolar arterial oxygen gradient, a commonly used measure of oxygenation impairment. In addition to this endpoint, the FDA will focus its review on three key secondary endpoints that reflect the amount of improvement in clinical symptoms and function. While we were already well powered for the primary endpoint, we conduced the blinded interim check of the two secondary endpoints, the six-minute walk distance and St. George's respiratory questionnaire in order to help ensure adequate statistical power. The analysis indicated that we were adequately powered for one of these endpoints, but in order to achieve 90% power for both, we increased the sample size to 135 patients, which is 45 patients per treatment arm. By increasing the sample size, we believe we were able to further increase the likelihood of success of a robust and convincing result across a number of different endpoints in our pivotal study. And that we can deliver a stronger dataset on the secondary endpoints that we know we’ll be under focus by the FDA. We have continued to make steady progress in enrollment and we expect to complete our revised enrollment target by the third quarter of 2018. Topline results are therefore anticipated to be available in the second quarter of 2019. Next, I would like to spend some time discussing a key development of our growth strategy, which is the indication expansion of Molgradex for the treatment of NTM lung infection. This is an extremely excited project for us as we believe Molgradex really represents a truly novel therapeutic approach for this infection, where antibiotics alone have proven inadequate for many of the patients and there is therefore a very high need for more effective treatment alternatives. NTM lung infection is characterized by a macrophage dysfunction that allows the bacteria to survive and multiply inside these immune cells that are normally supposed to kill the bacteria. Treatment of the infection requires very long multi-drug antibiotic regimens, which can be quite toxic and poorly tolerated and therefore this places significant burden on the patients. And yet the antibiotic treatments often still fail to eradicate the infection. In contrast with antibiotics that target the bacteria directly GM-CSF stimulates the immune cells of the lungs to do a better job of killing the bacteria. The attraction of this approach is that we expect it can be used both with or without antibiotics and that the mechanism will not be affected by antibiotic resistance on the bacterium. As you really think about it, the concept is in fact quite analogous to the situation in PAP, where we stimulate the alveolar macrophages to process the surfactant lipids that initially accumulate within the macrophages causing the disease. Just recently in February, two case reports were published in the European Respiratory Journal by Dr. Mark Wylam and his coworkers at a Mayo Clinic exploring the use of inhaled GM-CSF for the treatment of mycobacterium abscessus or M. abscessus in short, which is a species of multi-drug resistant NTM. These case reports both in individuals with cystic fibrosis demonstrated that inhaled GM-CSF was safe and well tolerated and able to eradicate or dramatically reduce the NTM infection. Now these types of infections and in particular M. abscessus are very difficult to eradicate in patients with chronic lung disease such as CF and often seriously affect patient mobility. Indeed, both of these patients had a long history of M. abscessus infection that could not be successfully treated with antibiotics. Having high growth of bacteria in their cough sample and both were experiencing a decline in the clinical condition. But when started on inhaled GM-CSF treatment both actually demonstrated not only rapid microbiological response, but also marked clinical improvement. We of course need to be cautious in drawing for conclusions based on experience in a small number of subjects, but we are nevertheless very, very encouraged by these case reports and we believe that further reinforce the scientific rationale of investigating Molgradex, for the treatment of chronic lung infect or – NTM lung infection. So with this in mind, I'm sure you can understand why we're so excited to have just yesterday announced the initiation of our first clinical study in NTM, the OPTIMA study. The study will be conducted at six investigative sites, four in Australia and two in the UK. The study will enroll patients affected by either mycobacterium avium complex or MAC or M. abscessus and will include patients who are refractory to standard NTM antibiotics, but still continue using them as well as patients who have stopped antibiotic treatments because of intolerance or lack of efficacy. NTM infection, we believe – in NTM infection, we believe Molgradex will be eligible for the orphan drug status as well as the qualified infectious disease product status. And if the results of the OPTIMA study meet our expectations we believe the product may also qualify for the breakthrough therapy designation. So beyond PAP and NTM, we believe we're in fact just at the beginning to explore the full utility of Molgradex. So in this respect what you should all realize is that a product – if the product works as we hope in NTM infection, we believe this could represent the start of an entire paradigm shift in the treatment of lung infection with localized stimulation of the immune system. This is a very excited prospect to something that we expect to be exploring further in this year and in the coming years. Now let me then move to our second program, AeroVanc, which is the first inhaled antibiotic being developed for the treatment of persistent methicillin-resistant Staphylococcus aureus infection or MRSA infection in individuals with CF. We believe AeroVanc represents a very promising opportunity to make a significant improvement in the treatment of MRSA infection in CF associated with increased morbidity as well as a shortened life expectancy. AeroVanc has already been granted orphan drug designation in qualified infectious disease products status for the treatment of persistent MRSA infection in CF in the United States. Last September, we announced the initiation of our Phase III AVAIL study which is a randomized, double-blind, placebo-controlled study of AeroVanc and that will enroll approximately 200 patients, 75% being 21 years of age or younger. The study is conducted at more than 70 clinical sites across the U.S. and Canada. We have added very good start to the study enrollment with lots of interest and excitement at the study sites and we currently anticipate that the patient enrollment will be completed within a year from now by the first quarter of 2019, and topline data is therefore anticipated in the second half of 2019. And lastly before I turn the call over to Dave, I would like to briefly discuss the recent developments in the Aironite program. As many of you know, Aironite is the inhaled sodium nitrite solution that has been investigated for heart failure with preserved ejection fraction, or HFpEF and was added to Savara’s pipeline as part of our merger with Mast Therapeutics last year. We recently announced the failure of INDIE Phase II study of Aironite to meet its primary endpoint of peak exercise capacity and any of its secondary endpoints, and that we therefore do not plan to support any new development of the product. The INDIE study was one of two investigator sponsored Aironite studies in patients with HFpEF initiated prior to the Mast merger. The study was sponsored by Duke Clinical Research Institute as the Coordinating Center for the Heart Failure Clinical Research Network and was conducted primarily with grant funding from the NIH. While the results are of course disappointing, I would like to emphasize that this result has really no material impact on our core business. I would though at this point like to take the opportunity to thank Dr. Barry Borlaug, the Principal Investigator to Duke Clinical Research Institute, as well as the Heart Failure Network for their efforts in conducting the study. We certainly hope that the study will serve to increase the understanding of the disease mechanisms in HFpEF and perhaps eventually to help develop other treatment concepts for this difficult disease. Now let me then hand over the call to Dave Lowrance, our CFO who will discuss our fourth quarter and full-year 2017 financial results.

Thanks, Taneli. Good afternoon, everyone. So allow me to begin by highlighting our fourth quarter financial results. Savara's net loss for the fourth quarter of 2017 was $6.5 million or $0.23 per share compared with a net loss of $4 million or $1.31 per share for the fourth quarter of 2016. Research and development expenses were $6.4 million for the fourth quarter of 2017, compared with $3.5 million for the fourth quarter of 2016. General and administrative expenses for the fourth quarter of 2017 were $2.8 million compared with $0.9 million for the fourth quarter 2016. As of December 31, 2017, we had cash of $22.1 million and short-term investments of $72.2 million. The company’s operating expenses for the fourth quarter of 2017 were approximately $9.3 million. And Savara ended the fourth quarter of 2017 with approximately $14.8 million outstanding and long-term debt on its balance sheet, which we utilized to bolster our operations. Reviewing the full fiscal year 2017 financial results, Savara’s net loss for the year ended December 31, 2017 was $29.8 million or $1.76 per share compared with a net loss of $10.9 million or $5.62 per share for the year ended December 31, 2016. Research and development expenses increased by $10.3 million or 126% to $18.5 million for the year ended December 31, 2017 from $8.2 million for the year ended December 31, 2016. The increase was primarily due to $7.8 million in additional costs associated with the development of Molgradex, which was not part of the Savara development plan until mid-July 2016. Additionally, we incurred an increase of $1.5 million in AeroVanc CMC and study costs as we initiated our Phase III clinical trial. And in April 2017, we began incurring costs for our Aironite program, which totaled approximately $1 million for the year ended December 31, 2017 versus zero for the year ended December 31, 2016. General and administrative expenses increased by $8.3 million, or 292%, to $11.1 million for the year ended December 31, 2017 from $2.8 million for the year ended December 31, 2016. This increase was due to $2.2 million of expense in connection with the changes in fair value of the contingent consideration associated with the Serendex acquisition and approximately $2.8 million of expense in connection with the merger with Mast Therapeutics, our financing activities and related costs including legal and accounting expenditures. Additionally, Savara personnel costs increased $1.5 million in part due to the onboarding of several new administrative positions, including the addition of key finance and accounting personnel. Beginning in late April 2017, Savara began incurring costs associated with being a public company. These costs included certain legal, accounting, and filing expenses, as well as public company D&O insurance coverage, all of which totaled approximately $1 million. Additionally, administrative costs of Savara ApS, our Denmark subsidiary totaled $0.8 million during the year ended December 31, 2017 and such entity was not part of Savara until July 15, 2016, and had costs of only $0.3 million for the 5.5 months under our ownership through December 31, 2016. 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 each our decisions. As such we believe the company is sufficiently funded to execute our current business plan into 2020. Now, let me hand the call back to Rob.

Thank you, Dave and Taneli. I am incredibly excited about the progress our team continues to make. In 2017, we demonstrated our ability to execute and consistently meet or even exceed our guidance, with more of the same expected in 2018. Some key upcoming clinical milestones to look forward to include the completion of the enrollment in our Phase III IMPALA study, Molgradex and PAP expected in the third quarter of 2018, and the completion of patient enrollment in our Phase II OPTIMA study of Molgradex and NTM lung infection in the third quarter of 2018. On the investor relations front, we will be continuing to engage with the investment community through top-tier health care conferences, bank-sponsored road shows, and relevant medical meetings. Before I close the call today, I would like to acknowledge the presence of our Savara staff who continue to grow our operations and equally divided our resources between our Danish office and our corporate offices in Austin, Texas. During the last year, you had the opportunity to hear mostly from Dave and Taneli who are both exceptionally confident within and beyond their specific roles. However, it’s particularly important for me to recognize the entire team of highly skilled and motivated folks that continue to help us move Savara forward. I would also encourage you to follow my CEO blog for our shareholders to have an opportunity to receive more frequent and informal updates about our progress and future plans. And with that, I’d like to turn the call back to Phil for analyst questions.

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

Hi, guys. Thanks for taking my questions. I guess first of all on the IMPALA study, can you just remind us a bit on FDA’s thinking on allowing the outcome endpoints, so the walk endpoint and those, to be considered secondary endpoints as opposed to primary endpoints as we normally see for these kind of studies as opposed to the alveolar-arterial gradient as a primary?

Yes. Taneli, you wanted to take that one?

Yes. Thank you, Dewey for your question. So in our discussions with the FDA they have allowed us to leave the AA gradient as the primary endpoint. But additionally they will be focusing their review on the six-minute walk distance and the St. George's questionnaire as well as frequency in time to lung lavages. So in this context, we will be analyzing the endpoints in a sequence, starting from the AA gradient and then subsequently analyzing all of those secondary endpoints with multiplicity correction. So that we believe gives us the best opportunity to not only show consistent responses across different endpoints, but also then hopefully have statistical significance, at least in one of the secondary endpoints. And this statistical plan has been presented to the FDA and they have not had any remarks on that. We consider that now being accepted in our IND filing.

Okay. Thanks. And then Dave for you, I guess, can you guide us a little bit on how we should approach R&D and G&A expense flow over the course of 2018 as it relates to 2017 spend? And then what are your thoughts on the cost of the NTM study, the OPTIMA study, relative to other current programs?

Yes. So thanks for the question. So right now our focus has been our cash position starting at the end of 2017, which was approximately $94.3 million. And what we’ve guided is that that will take us through 2018, 2019 and into 2020. With all of our studies going on right now, patient enrollment is going to be key. So our quarters are going to fluctuate. Therefore, we just kind of looked at the broad picture of where is our positioning going to be based on our current business plan. And say the second part of the question again.

The NTM, Dave, the OPTIMA study, how much can you guys – those two – the relative spend for that, relative to IMPALA or AVAIL?

So at this moment in time, we've yet to guide specifically on each of our studies, particularly as the team works across the board on all of those and how we allocate our costs, we've not disclosed at this point.

Okay. I guess last one for me, maybe for Rob. You mentioned there is 100 conditions in rare pulmonary disease that appear to be under treated, are there any there that are of particular interest that you could call out at this point?

Not really Dewey, in fact I can send you a link that has a list of now undiagnosed and rare lung diseases. But what we do on the corporate side and even when it comes to indication expansion is just look for opportunities that fit our criteria and those are ones that have a large market opportunity and ones that fit our own desire to work with compound and products that are well known and then the like. So there is no specific disease that we’re currently favoring over others.

All right. Thank you for the answers.

Thank you.

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

Hi, there. Thanks for taking the question. For the Molgradex with the new IND just to wrap up that study, are you going to make a concerted effort to get a lot of those patients from the U.S.? Or how should we think about the breakdown and how important is that to your filing here?

Taneli? Hi, Liisa. How are you doing?

Yes. So formally there are no requirements for any specific number of U.S. patients versus patients from other parts of the world. Obviously, we want to have robust enrollment in the U.S. as we've entered the country now, but there is no specific target. We will continue to enroll also in other parts of the world and priority is to complete the enrollment in time and that's what we're focused on.

Okay. And then also on Molgradex. For the NTM program, what is your comfort level in extrapolating from the case studies, which were in CF patients to the non-CF population, which will be the focus of the Phase II? Thanks.

Well generally speaking, CF patients have a very difficult baseline condition in their lung. So one would expect that this is going to be more difficult to treat than NTM in the absence of CF. So our confidence is of course high and it's not only because of the clinical case reports, it is because of the strong science behind this concept and we could have moved ahead into a clinical trials even without having seen those case reports. That was really the final push for us to move very rapidly into the study.

Great. Thank you very much.

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

Hey. Thanks a lot. Continuing on with the OPTIMA study at Molgradex and NTM, I know in the past you suggest that you might provide interim look at the data given is open-label study. I may have missed it, but could you comment on your thinking there? And then secondly, I know that you recently hired a Head of Business Development. I was wondering if you could give us any updates on that front and if you're close to any in-licensing that sort of thing? Thanks.

David, thanks for the questions. I’ll answer the first one and then hand the second over to Taneli. As far as guiding on interim look, we’ve not formally guided that we would do that. And so we are not formally guiding that we will do interim looks on the NTM program. I will hand to Taneli for the second part of your question.

Well, David. Thanks for the question. But I don’t think I can give you a meaningful answer because it's very difficult to comment on work in progress on the corporate development side. As you know, we may be very close and yet far from something and we would not really be able to talk about that. We are definitely evaluating lots of opportunities and there are plenty of projects addressing rare lung diseases, and so definitely we have lots to do on that front. And we will keep you all informed once there is something material to talk about.

Okay. That's a fair response. And then just one final question, could you comment, post the tax reforms on what you believe to be your long-term tax rate for modeling purposes?

Yes. So thanks for the question. That’s actually something that we're going to be diving into here in 2018. We certainly have been looking at what the legislation is telling us. It will have some type of impact. At this moment, I can't comment on specifically what that is.

Okay. Thanks.

The next question comes from Michael Higgins with Ladenburg Thalmann. Please go ahead.

Hi guys. Thanks for taking the questions. I had a couple of good questions already in OPTIMA given the start and congrats on that. I guess I’ll beat the same drum if I could. Can you provide for us how many sites or countries you maybe enrolling OPTIMA? It looks like Australia is the lead so far, but any expansion beyond that?

Go ahead Taneli, add some color.

Sure. Michael, we are enrolling at four sites in Australia and two sites in the UK. And since this is a fairly small study enrolling 30 patients, we feel very comfortable with that number of sites, and in fact we've got plenty of patients wind up.

Okay, great. Another one on OPTIMA if I could. The 300 microgram dose, is that BID every other weak as we've seen in recently published case studies or how much that would be dosed?

So we are using our PAP dose 300 micrograms per day continuously for the six months, so it is one of our two active regimens.

Okay. Everyday for six months, okay.

Everyday.

Gotcha. Might we see any supportive data or evidence published at conferences or any of the publications this year now looking for clinical results, but any additional information you may release this year?

So right now, we thought formally guided on 2018 as far as interim results on the NTM study.

Okay, appreciate it. I’ll jump back in the queue. Thanks guys.

Thanks. End of Q&A

Okay. Seeing no further questions. This concludes our question-and-answer session. I would like to turn the conference back over to Rob Neville for any closing remarks.

Thank you, Phil. Thanks, everybody, and including our covering analysts for your participation in today’s call. Appreciate it. Take care.