SVRA - NASDAQ

Ioana Hone - Head of Investor Relations Rob Neville - Chief Executive Officer Taneli Jouhikainen - President and Chief Operating Officer Dave Lowrance - Chief Financial Officer

David Steinberg - Jefferies Jon Wolleben - JMP Securities Rui Galvao - Ladenburg Thalmann Dewey Steadman - Canaccord

Welcome to the Savara 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 is the property of Savara. All 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 call over to Ioana Hone, Head of Investor Relations at Savara.

Thank you, Austin. Good afternoon and thank you for joining us. A press release reporting our second quarter 2018 financial results was issued earlier today, August 09, 2018 and can be found on the Investors Section of our website at savarapharma.com. 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, and clinical studies and financing matters. Such statements are subject to significant risks and uncertainties, including those described in our press release issued today Thursday, August 9, 2018, and our recent SEC filings on Forms 8-K, 10-K and 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. As usual, we will field analyst questions at the end of the call. However, we would like to encourage our shareholders on the call to submit questions via email to [email protected]. Time permitting, we will attempt to address these questions and others recently received by our IR team. With that said, I’d like to turn the call over to Rob Neville, Chief Executive Officer of Savara.

Thank you, Ioana and good afternoon, everybody. As usual, with me are Taneli Jouhikainen, our President and Chief Operating Officer, who is actually dialing in from Europe; and Dave Lowrance, our Chief Financial Officer, who is sitting here with me in Austin, Texas. It has been an incredibly eventful and productive quarter for us on the clinical business development and operational fronts. As many of you may have noticed, we rang the NASDAQ bell a few weeks, and for me it was a very meaningful day and a fantastic celebration of the determination, hard work, and accomplishments achieved by the Savara team, our Board, and our supporters. Later in that same week, we announced successful public offering of gross proceeds of about 48.9 million made largely by existing shareholders and new institutional healthcare investors. This recent offering was driven by exciting clinical development with our lead program candidate, Molgradex, the launch of a new NTM study, as well as the launch of our exploratory product pipeline top line. I’d like to spend a few minutes discussing each of these three items. First, we’ve received encouraging and positive investigator feedback on our ongoing physical IMPALA study. While the efficacy part is blinded, we’re receiving positive feedback from the open-label parts, as well as high interest in participation in our IMPALA-X extension set, which is designed to evaluate the long-term use of Molgradex. Driven by this encouraging feedback, as well as the possibility of an earlier than anticipated Molgradex Biologic License Application, or BLA filing, we want to expedite our preparation for potential commercial launch by making initial investments in our core commercial leadership team and quick commercial launch activities. Second, as part of our expansion strategy of our Molgradex program, we announced plans to launch a new Phase 2a study of Molgradex in CF-affected individuals with chronic NTM lung infection in the U.S., early next year. This is a natural progression of the program, as NTM represents significant unmet need in CF, affecting an estimated 12% of CF-patients. Third, our vision at Savara is to become the orphan lung disease company. What we mean with this vision is that we intend to build a strong pipeline of innovative products covering a broad range of orphan lung diseases. In this regard, we recently launched our exploratory product pipeline comprising three proof-of-concept programs focused on difficult to treat lung infections and announced our acquisition of the assets of Cardeas Pharma Corporation. In conjunction with that, we appointed Dr. Bruce Montgomery as strategic advisor. Dr. Montgomery is one of the most accomplished entrepreneurs in our field, a leading innovator in therapeutics for often lung diseases, and a key force behind the development of pulmozyme, TOBI, and Cayston to name but a few. We are approaching what we see as the most exciting 12 months in our history with tremendous opportunity for growth and exciting milestones, which we will outline for you in a moment. Let me hand the call over to Taneli, to review the progress of our clinical studies, our recent acquisition of Cardeas and exploratory pipeline in greater detail.

Thank you, Rob, and good afternoon everyone. Let me begin with a clinical update outlining the continued steady progress with our four ongoing clinical studies. The IMPALA, the IMPALA-X, the OPTIMA, and AVAIL study. In our pivotal Phase 3 IMPALA study of Molgradex for aPAP we had enrolled 96 patients as of the end of Q1. Subsequently, we maintained our steady rate of about one patient per week and enrolled an additional 10 patients during the second quarter for a total of 106 patients at the end of Q2. This left us with 29 patients to enroll in the final quarter and as we had expected, the need for an increase of the enrolment rate. Indeed, we are seeing this happening and as of today, we have enrolled another eight patients with a good pipeline of new screenings. Overall, with a total of 38 study sites contributing to the enrolment, including also the new U.S. sites, we maintain our guidance of completing enrolment by the end of the current quarter. It will be tight, but with the current activity, we remain optimistic. Accordingly, we also maintain our guidance for top line data in the second quarter of 2019. The next update is for the IMPALA-X study. An open-label extension study that offers patients completing the IMPALA study, an opportunity to continue treatment with Molgradex for up to 3 additional years. At the end of Q2, there were 14 subjects eligible to enroll into IMPALA-X, 12 of whom had enrolled to date, while the remaining two subjects are on schedule to be enrolled shortly. Now as Rob noted, we are very encouraged by positive investigator feedback, I should say on treatment with Molgradex in the open label portion of the IMPALA-study, as well as the very high interest in participation in the IMPALA-X study. We believe that high enrolment rates into the IMPALA-X study gives important insight into the level of satisfaction with Molgradex. Accordingly, driven by our confidence in the outcome of the study, we have started to invest more intensively in the activities required for a timely commercial launch after the targeted FDA approval with investments into core commercial leadership and staff, as well as external commercial activities required for a successful launch. We believe that robust results in the IMPALA study would make Molgradex eligible for a breakthrough therapy and/or fast-track designation and facilitate our submission of the Molgradex BLA in the first half of 2020 with an anticipated commercial launch in late 2020 or early 2021. Next, I would like to update you on the Phase 2 OPTIMA study of Molgradex for the treatment of NTM lung infection. We initiated the study in March, and we have continued strong progress in enrollment. At the end of Q1, we had enrolled our first four patients. Subsequent to that, during the second quarter, we enrolled an additional 13 patients, ending the quarter with 17 patients enrolled. With the healthy pipeline of new screenings and a very low screening failure rate, we maintain our guidance of completing enrolment of all 30 patients by the end of this quarter. We now plan more definitively to provide interim results in Q4 of this year and we continue to expect top line results in Q2 of 2019. Now, just as a reminder, our ongoing OPTIMA study is focused on NTM patients that do not have CF. However, as a progression of the program to a broader range of NTM patients, we have been working on a new clinical study, the Phase 2 open-label study of Molgradex in CF-affected individuals with chronic NTM lung infection. After Dr. Wieland's publication of the highly encouraging results and in M. abscessus-infected CF subjects, which included eventual culture conversion in both of the subjects. There has been tremendous interest in the CF community towards our planned study. We are now in close collaboration with the CF foundation and their NTM network and our preparations are well underway for an anticipated study start in Q1 of next year. This new study will enroll 30 patients in the U.S. with chronic mycobacterial abscesses or Mycobacterium avium complex infection. The study will comprise three patient subgroups with a treatment period of 48 weeks, and a follow-up of 24 weeks. In addition to the two groups we have in the OPTIMA study, we also have a third group consisting of treatment naive patients who will be treated with Molgradex monotherapy. Similar to the OPTIMA, the primary endpoint will be NTM sputum culture conversion to negative. Secondary microbiology endpoints include consistency and durability of NTM culture conversion, smear conversion to negative and quantitative bacterial burden. In addition, we will have a number of clinical endpoints typical for CF studies, including pulmonary function test, respiratory symptom score and change in body mass index. Now, lastly, on the clinical development front, I will provide you with an update on our pivotal Phase 3 AVAIL study of AeroVanc. We initiated the study at the end of September last year, and is currently being conducted at more than 75 clinical sites across the U.S. and Canada. As of the end of Q1, we had enrolled 62 subjects out of the planned 200. Subsequent to that, during the second quarter, we enrolled an additional 45 subjects ending the quarter with a total of 107 subjects. We completed the enrolment of the full adult population last quarter that’s 56 subjects in total and we are known solely focused on the enrolment of the younger subjects, 6 to 21 years of age. This is the primary analysis population and it comprises of 150 subjects, 51 of whom have been enrolled by the end of the second quarter. As in all of our studies, we remain optimistic that we will continue to meet our enrolment targets, and we maintain our guidance for enrolment completion of AVAIL in the first quarter of 2019 with top line data therefore expected in the second half of 2019. Now changing gear from the current pipeline to the future, we have some exciting developments I would like to focus on. First, I would like to highlight the launch of our exploratory product pipeline, which underlines our commitment to growth through innovation and acquisition and our vision of becoming the orphan lung disease company, covering a broad range of orphan lung diseases, with a strong pipeline of innovative products. In this context, we’re also extremely excited by the appointment of Dr. Bruce Montgomery as a strategic advisor. For those of you who are less familiar with our field, Dr. Montgomery is a leading pioneer and one of the most accomplished entrepreneurs in the field of orphan lung diseases and inhaled antibiotics. He was a key driving force behind the development of Pulmozyme, TOBI and Cayston, all of which are now important cornerstones of inhaled CF therapies. In terms of our programs, he has already been providing informal input on the development of AeroVanc and Molgradex for quite some time now. In addition to providing expert input for our ongoing clinical development, a key focus area of our collaboration will be to identify and evaluate new high impact products or indications that would help fuel our future growth. Our plan is to initially invest up to $5 million to $10 million per year into our exploratory pipeline, which with modest cost and proof-of-concept could collectively be transformational for our future growth. Our NTM program is in fact already a good example of exploratory studies through internal innovation within our existing programs. Whereas the first new acquisition into our exploratory pipeline is the amikacin/fosfomycin innovation solution, which is a Phase 2 ready product candidate acquired from Cardeas Pharma. The combination of two antibiotics amikacin/fosfomycin in a patented formulation optimized for nebulizer delivery has been extensively tested by Cardeas. In-vitro studies with this antibiotic demonstrated a powerful broad-spectrum effect against Gram-positive and Gram-negative bacteria, including multidrug-resistant bacteria. Although the product failed to meet its primary endpoint in a ventilator-associated pneumonia study, the antimicrobial efficacy was excellent and the product had an encouraging safety and tolerability profile. We are most certainly intrigued We are most certainly intrigued about the potential of the product in both hospitalized patients, as well as patients with chronic bacterial lung infections. In this context, we intend to redirect the program to highly drug resistant infections that currently lack adequate treatment options, and to also apply our dual strategy of combining locally administered antibiotics, with local stimulation of the innate immune system in the form of Molgradex. This is basically an expansion of the approach we’re already applying for NTM. We believe that harnessing the immune system to fight infection either with or without direct antimicrobial treatments, could represent a significant paradigm shift in the treatment of refractory lung infection. We refer to this as anti-infective immunotherapy. The therapeutic power of the immune system has already been well-established in oncology and we believe a similar broader focus in enhancing the immune system is also imminent in the infectious diseases. I will finish on this high-note and would now like to hand over the call to Dave, who will review our second quarter financial results.

Thanks, Taneli. Good afternoon everyone. With respect to our second quarter 2018 results, for the three months ended June 30, 2018, our net loss attributable to common shareholders was 11.6 million or a loss of $0.38 per share, compared with a net loss attributable to common shareholders of 12.5 million or a loss of $0.90 per share for the three-months ended June 30, 2017. Research and development expenses for the three-months ended June 30, 2018 were 9.3 million, compared with 4.2 million for the three-months ended June 30, 2017. The increase was due to several factors, including 2.3 million in additional expenses associated with AeroVanc Phase 3 study activities, 1.8 million in development cost of Molgradex, including the expansion of the aPAP study in the U.S., plus costs associated with the Phase 2 NTM study, and 1 million in expense related to the acquisition of assets from Cardeas. General and administrative expenses for the three-months ended June 30, 2018 were 2.5 million, compared 5.1 million for the three-months ended June 30, 2017. The decrease is due to the recording in Q2 2017 of 1.9 million of expense for a change in fair value of contingent consideration and 1.7 million in expense associated with our merger in April 2017. These expenses were partially offset by approximately 0.9 million in additional cost in Q2 2018, related to personnel and other expenditures associated with public company requirements and activities. Other expense decreased by 2.7 million for the three-months ended June 30, 2018, compared to the same period in 2017 and this decrease was primarily due to the second quarter 2017 having 1.8 million of expense associated with the extinguishment of certain pre-merger convertible promissory notes. As of June 30, 2018, we had a debt balance of approximately 15 million and we had cash, cash equivalents, and short-term investments of approximately 74.8 million, and obviously this excludes the 48.9 million financing, which occurred in July. We continue to execute our business plan and our vision of becoming the orphan lung disease company. This includes supporting all of our clinical studies, while balancing our resources in an efficient manner. Additionally, we believe the company is sufficiently funded to execute our current business plan pass the point of data readouts for both Molgradex and AeroVanc with sufficient runway into the latter part of 2020. Now, let me hand the call back to Rob.

Thank you, Dave and Taneli. As you can see from our achievements over the past quarter, we are very pleased with the steady progress we continue to make. We all remain determined and focused to complete our key studies with the highest possible quality and we're committed to doing our very best to deliver in-line with our guidance. And so, to summarize, I'd like to reaffirm the key events we look forward to this year. First of all, completion of patient enrolment on pivotal IMPALA study expected this quarter. Second, completion of patient enrolment on our OPTIMA study also expected this quarter. And third, interim results of our OPTIMA study in the fourth quarter of 2018. In addition, 2019 of course will be very meaningful from a clinical data readout standpoint with top line data from IMPALA, OPTIMA and in AVAIL. As I mentioned in the beginning of the call, we would like to encourage shareholders to submit questions via email to [email protected], as time permitting we will attempt to address them as well as others received by our investor relations team. And with that, I’d like to turn the call back to the operator, first for analyst questions.

[Operator Instructions] And our first question will come from David Steinberg with Jefferies. Please go ahead.

Great, thanks. So, acknowledging it’s only been a couple of weeks since the announcement, have you given much thought to which indication you might pursue for the amikacin/fosfomycin asset?

Hi, David good to speak with you. At this point no. We’ve obviously spent a lot of time looking at the program and exploring different opportunities, but we’re not yet guiding on the indication. We will likely do that later this year or early next year.

Okay. Fair enough. And then, secondly, with regards to Molgradex and NTM, does design provide an interim look at the data and NTM implied is positive that there is something that you're seeing that we're showing off, if not why were you previously unsure, if you would actually release the interim look? Thanks.

Danny, why don’t you address that?

So, first of all, the study is too early to judge at all. Our decision to make or more definitive guidance on the interim is just based on our discussions with lots of different parties over the course of the last couple of months. So, we’ve noticed it is just better to be specific and just come up with the data, whatever the data looks like.

Okay. Thanks.

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

Hi this is Jon on for Liisa. Congrats on all the progress and thanks for taking the questions. Just two from me. When we think about NTM, now that you guys are going after CF patients as well, can you kind of discuss the relative opportunities there in both the CF and non-CF populations?

Go ahead, Taneli.

So, obviously the non-CF population with NTM infection is much larger in terms of patient numbers. But then we realize that we are very much connected to CF population. We feel that there is definitely a high need out there, and perhaps unlike with the non-CF population we believe there might be better opportunity also to show shorter-term clinical improvements. So, these two population are distinct but yet it’s the same infection, and we just feel like it’s best to cover the full population, as well as we can, and go abroad early in the program.

Got it. And then, could you provide a little more detail about the commercial activities you are planning as of today, is it just bringing on maybe cheaper commercial? Or is it more extensive there? Can you provide any color on those details?

Go ahead, Taneli.

Sure. Obviously, the Chief of the operations is key, and we have already a person on board. We will expand the core group to around six managers to eight managers to account for the key activities. We do intend to launch the product not just in the U.S., but also in key European markets. So, we’re accounting for that. And in terms of the external activities, we are definitely starting with those – with the longest lead times being than hopefully as ready as we can with the necessary information to support timely launch with reimbursement and pricing substantiated.

Great. Thanks for taking the questions.

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

Hi, everyone. Thanks for taking the call. This is Rui in from Michael. I just had a couple of questions about the timing around IMPALA. One question is on the end of enrolment you are guiding to Q3 2018, but based on what the number of patients you enroll so far it looks like you might have to go into October, could you give a little bit more detail on why you think you’ll be able to enroll the 30 patients in the Q3?

Go ahead Taneli.

Sure. So, you're right that our historical enrolment has not been quite as fast, but realize that we have recently added a fairly high number of new sites in different countries, including the U.S., and we are now seeing the boost that we expected to start seeing about at this time, through the latest activities, and that is demonstrated by 8 new randomizations in the last four weeks or so. And we're seeing a healthy pipeline of screenings, which obviously gives us a window for future randomizations. So, this is all that gives us the optimism that we will be completing the enrolment according to our guidance.

Okay. Thank you. The second question is also of on IMPALA. Since you are guiding to results in Q2 2019 as before, so on track, but you are also guiding to filing the BLA in the first half of 2020, I was wondering what will happen in between those two dates, why such a long delay to the BLA filing?

Well, actually. You can look at lots of reference companies and at least in my experience six-month to 8-month time from top line data to NDA or BLA filing is fairly normal and actually a good achievement. We’re giving, perhaps a little more buffer to the date of the BLA filing since it’s still quite some time ahead of us. But that’s generally what we expect them to be working on after data read it is just to finalize reports. So, finalize, the integrated summaries of safety and efficacy and the CMC package and everything, and if we can accomplish that within 6-months to 8-months, 9-months I think we’ve done a great really good job.

Okay. Thank you, very much. That’s it from me.

And our next question comes from Dewey Steadman with Canaccord. Please go ahead.

Hi guys, thanks for taking the question. I guess I just have two on NTM. First on those CF, to expand on the earlier question, is there a fundamental difference in the dosing pattern for CF patients receiving Molgradex versus non-CF patients? And then just a further question here too. In the wake of the Insmed panel, can you just expand a little bit on your thoughts on how you would think the NTM landscape will evolve over time with an infinite product coming on board and then potentially Molgradex as well? Thanks.

So, let me answer the past first part of that Dewey. The CF study is going to be 48-weeks, so double the duration of the current NTM study, which is six-months and that’s a primary difference and there are some additional CF-related measurements like the lung capacity and these types of things. As far as the Insmed panel and the impact of that, I’ll hand it to Taneli.

Thank you, Rob. And thanks Dewey for the question. So, first of all, in terms of the landscape. First of all, we’re very much delighted to see the outcome of the panel and the vote in favor of approving the product. We do feel that our product and the Insmed product are complementary rather than competitive. We see their product as a welcome addition to the antibiotic regimens, but the way we see Molgradex is that we could combine that with any existing or future antibiotic regimen, and on top of that we can envision Molgradex as a monotherapy in certain patient groups, for instance those who cannot tolerate the antibiotics or who just appear to be refractory. And certainly, there is still a lot of room for improvements in this field. The new Insmed product is not going to address all that need. In terms of the outcome, further, we do think that the FDA has now or well we hope that the panel at least has set a bit of a precedent in showing what an approval or endpoint could be. Even if there were some question around the clinical benefit that was demonstrable in a short-term clinical trial. So that, we also feel is a piece of good news although anticipated. So…

Thank you, Dewey and I believe – sorry, go ahead Dewey.

Just add to follow up on the CF NTM, in practices do you imagine that these patients will be receiving Molgradex that on a much more frequent basis than the typical non-CF Molgradex patients?

Not really so. The regiment is the same as in the non-CF in our study, and of course it’s too early in the program to accurately be able to forecast what type of regimens that might be applicable in one or the other subgroup. And in terms of duration of treatment, our belief is that regardless of the baseline disease subjects who have chronic NTM infection have some level of white blood cell disorder of macrophage, disorder functionally, and therefore what we envision is that there might very well be appeal of using immunostimulant from time-to-time as a preventative method as well.

Great. Thanks, so much.

And this will conclude our question-and-answer session. I would like to turn the conference back over to Rob Neville for any closing remarks.

Thank you, Austin. First of all, we have received some questions through email from some of our shareholders. The first one is a simple one, and that is, how much did you pay for the Cardeas asset, I’ll hand to Dave to address that one.

Yes, we paid $1 million in the form of Savara stock upfront, and then there is some a milestone payment upon the launch of the Phase 3 program.

Thank you, Dave. The next one is for you Taneli. For the interim results of OPTIMA that we are now guiding in Q4, what should we be looking for? So, what expectations should we be having for that interim result?

Right. So, with 17 subjects enrolled at the end of Q2, we’re expecting the interim data to include somewhere in the order of 10 subjects to 12 subjects with the six-months smear results. And, then perhaps the same amount of subjects with three-month to four-month cultures. Now, this is too short of a time to see a lot of culture negativity in our opinion. So, the focus will be on the smear results. And also, there is no delay such as this eight-week culture time that we have for NTM. The smear result is more immediate. So, we're going to have more meaningful data for that. So, really, expect to see something on that front with a more comprehensive view at that time, and then less so on the cultures at that time.

Thanks, Taneli. And then one last question, it is sort of combined into two, was the new NTM CF study initiated due to concerns in the OPTIMA data? So, in other words, have we already seen any trends in the OPTIMA data and was this a justification for launching the new CF study?

Definitely not. So, the CF study has been in the works for a long time. In fact, already prior to us starting the non-CF NTM study, and admittedly we’ve had some new steam into this through the very high interest towards the study. But we're definitely too early in the OPTIMA to really be able to judge from the first few patients getting to the two-month and three-month time points.

Okay. So, that’s all the questions. I do appreciate those that emailed those to us, appreciate that and look forward to that as an ongoing routine for us so that we can hear both from the analyst, as well as the shareholders. So, thank you Dave and Taneli and Ioana and everyone else that’s on the call and participating, and as usual we’re a very teachable team, we’re open to any feedback we have on the call today, I mean, our goal to continuously improve. So, thank you. Take care.