SVRA - NASDAQ

Anne Erickson - Head of IR and Corporate Communications Rob Neville - CEO Taneli Jouhikainen - COO Dave Lowrance - CFO

Liisa Bayko - JMP Securities Dewey Steadman - Canaccord David Steinberg - Jefferies Michael Higgins - Ladenburg Thalmann

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 phone over to Anne Erickson, the new Head of Investor Relations and Corporate Communications at Savara.

Good afternoon and thank you for joining us. I'm happy to be onboard at Savara, at such a dynamic time for the Company, and I look forward to speaking with many of you in the coming months. A press release reporting our third quarter 2018 financial results was issued earlier today, November 07, 2018, and can be found on the Investors Section of our website at www.savarapharma.com. If you've not received this release or if you'd like to be added to Company's distribution list, please e-mail me at [email protected] This call is also being webcast live over the Internet and a replay will be available on the Company's website for the next 30 days, with the telephone replay available through November 12. Please note that today's conference call and webcast will contain forward-looking statements within the meaning of federal securities laws, including statements regarding the Company's strategy, goals, product candidates, clinical studies, and financing matters. Such statements are subject to significant risks and uncertainties, including those described in our press release issued today Wednesday, November 7, 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 to not 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 address these questions and others recently received by the IR team. Joining me on the call today are Rob Neville, Chief Executive Officer; Taneli Jouhikainen, Chief Operating Officer; and Dave Lowrance, Chief Financial Officer. I'll now turn the call over to Rob.

Thank you, Anne. And we're very excited to have you onboard. And welcome everybody to our third quarter call for 2018. Today I'll provide you with an update on the business and a brief recap of the quarter's highlights. Q3 was an eventful and dynamic quarter on a number of fronts. We made substantial progress against our corporate priorities by launching our clinical development programs, supporting the patient communities we serve, and engaging in activities that will enable Savara's transition to a commercial entity. We look forward to continuing this momentum as we forge ahead. On the clinical development front, we successfully completed patient enrollments in the two Molgradex studies. We are proud of the committed physicians and study coordinators working on these important programs and of course extend our deepest gratitude to the patients this participation make these studies possible. With the IMPALA study, last month we completed patient enrollment with a final count of 139 randomized patients across 34 study sites including the U.S. This makes IMPALA by far the largest clinical study ever conducted in aPAP patients, and we're excited to be leading this multinational endeavor. Hitting the target enrollments in the IMPALA study within a couple of weeks of our stated guidance was a significant achievement for the company and that means we remain on-track to report top line results in the second quarter of 2019. More importantly it moves us one step closer to potentially transforming the standard of care for a patient population with a high unmet medical need. Robust results from the IMPALA study would facilitate the submission of our BLA in the first-half of 2020, with an anticipated launch in late 2020 or early 2021. Driven by our confidence in the outcome of the IMPALA study, we have invested in core commercial leadership and begun initial preparations to support the launch. As a way to offer patients continued treatment with Molgradex, we initiated the IMPALA-X study. This is an open label extension study that allows patients who are rolling off IMPALA to continue treatment for up to three additional years. Due to the timing of subjects rolling of IMPALA and the eligibility to enroll in IMPALA-X, the last few months have been relatively quiet. Currently there are 14 out of 15 eligible patients enrolled in the extension study. Now I'd like to take a minute to underscore something that is very important to me personally and as a powerful motivator for all of us at Savara, and that is our commitment to the rare lung disease community. In the U.S. there are more than 100 identified rare lung diseases and nearly 2 million Americans living with one of these diseases. Savara poised are driven by a desire to make a meaningful impact and work hard to support the patient communities we serve. I'm extremely proud to tell you that in August we announced a global partnership with the PAP Foundation, a nonprofit patient advocacy organization dedicated to improving the lives of those affected by PAP. Through this partnership, we will support the foundation's efforts to organize, educate, and build the global PAP patients and physician community, including the expansion of the PAP patient registry. We will also offer broader assistance for community educational awareness efforts. We look forward to a close and meaningful relationship with this foundation to better support PAP patients. Now let's switch gears to Molgradex and NTM. We recently completed the patient's enrollments in OPTIMA with the final count of 32 patients. The study is evaluating Molgradex for the treatment of NTM lung infection. We look forward to reporting interim results later this quarter and top line results expected in the second quarter of next year. The interim results will focus on safety and tolerability data, as well as efficacy data initially assessed by microbiology results from a subset of patients who have completed the 24 week treatment period and have culture results available up to the 16 week time points. While OPTIMA study is evaluating Molgradex and patients with NTM lung infection who do not have CF, we're working to expand the program to include people living with CF who have chronic NTM affection. I am pleased to announce that the IND application for this indication has been accepted by the FDA and we expect to initiate a Phase 2 open-label study in CF patients with chronic NTM infection in the first quarter of 2019. Similar to OPTIMA, the primary end point will be NTMs sputum culture conversion to negative. In addition to secondary microbiology endpoints, the study will incorporate a number of clinical endpoints typical for CF studies, including pulmonary function tests, respiratory symptom score, and change of body mass index. Molgradex for NTM presents us with a unique opportunity to develop a meaningful differentiated therapy for people suffering from the serious and often chronic lung disease. Like TB, NTM infection is currently treated with long courses of combination antibiotics that attack the bacteria directly. These therapies are typically toxic, burdensome, and often fail to eradicate the infection. Our approach is different. Our attempting to stimulate the immune system and boost it's natural defenses, Molgradex enhances the body's ability to fight infection. This is similar to oncology immunotherapies that help the body's natural defenses fight cancer and could fundamentally change the way we treat refractory lung infections. Additionally, by targeting the human immune response as opposed to the bacteria, Molgradex may bypass the increasing problem of antibiotic resistance. We're anxious to see the results of the OPTIMA study so we can learn more about the potential of this anti-infective immunotherapy in NTM. And assuming positive results possibly explore the use of Molgradex for other lung diseases. Additionally we have some positive news on the RT fronts. We recently completed a license agreement with the Mayo Clinic that allows for inclusion of Mayo clinical data on our inhaled GMC set in Savara's patent applications related to NTM. This will strengthen the provisional patent applications that were filed in 2017, for the use of Molgradex and NTM lung infection. Last but not least, I'll give an update on the AeroVanc AVAIL study. This Phase 3 study is investigating on inhaled vancomycin for the treatment of persistent MRSA lung infection in people living with CF. The AVAIL study was initiated at the end of September 2017, and is currently being conducted at more than 75 clinical sites across the U.S. and Canada. As of the end of Q2, we had enrolled 107 subjects out of the planned 200. Subsequently during the third quarter we enrolled an additional 19 subjects, ending the quarter with a total of 126 subjects. As mentioned in the last quarter's call, we completed enrollment for the full adult population in Q1 and are now solely focused on enrolling the younger subjects that is those who are between 6 and 21 years of age. The younger subjects are the primary analysis population which comprises 150 subjects, 71 of whom were enrolled by the end of the third quarter. While enrollment was not as strong as we expected during the third quarter, we're encouraged by the enrollment numbers we've seen in recent weeks and continue to target enrollment completion in Q1, 2019. However, we do acknowledge there's some risk that we may slip from that target which could therefore also delay the top line data currently anticipated in the second-half of 2019. Before passing the call to Dave, let me spend a few minutes discussing our recently launched exploratory top line. By investing in select programs that target unmet medical needs which require limited time and a relatively modest capital investment to reach clinical proof of concept, we have to efficiently identify opportunities with the highest likelihood of success and maximum downstream reward to fuel our longer-term growth. Amikacin/fosfomycin inhalation solution is the first asset of our exploratory pipeline and is a Phase 2 ready candidate that was part of the Cardeas Pharma acquisition. We expect to announce the initial indication for the inhaled antibiotic combination early next year with an anticipated study start later in 2019, and to support these development efforts we welcomed Dr. Bruce Montgomery, as a Strategic Advisor. Looking ahead and thinking about the major inflection points expected next year, it's clear that this is a transformative time for Savara. We are relentlessly focused on our long-term goal of becoming the orphan lung disease Company, by building a strong and comprehensive top line of innovative products that address a broad range of rare diseases in this space. So now let me hand the call over to Dave for a financial update.

Thanks Rob. Good afternoon, everyone. Today we announced our financial results for the third quarter ended September 30, 2018. As mentioned in our prior call, we successfully closed the public offering at the end of July with net proceeds of approximately $45.8 million. With respect to our third quarter 2018 results, for the three months ended September 30, 2018, our net loss attributable to common shareholders was $12.6 million or a loss of $0.37 per share compared with a net loss attributable to common shareholders of $6.8 million or a loss of $0.28 per share for the three months ended September 30, 2017. R&D expenses for the three months ended September 30, 2018, were $9.5 million compared with $5 million for the three months ended September 30, 2017. The increase was due to several factors, including $2.5 million in additional expenses associated with AeroVanc Phase 3 study activities, $2.5 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. Conversely, the total R&D costs for the three months ended September 30, 2017, included approximately $0.4 million related to the Aironite program. General and administrative expenses for the three months ended September 30, 2018, were $3.1 million compared with $1.5 million for the three months ended September 30, 2017. This increase was primarily due to $1.5 million additional costs related to personnel. The remaining increase in expense was associated with continued legal and accounting requirements for a public company. Other income of $0.1 million was recognized for the three months ended September 30, 2018, as compared to other expense of $0.4 million for the three months ended September 30, 2017. The change was primarily due to additional interest income attributable to an increased balance maintained in our short-term investment. As of September 30, 2018, we had a debt balance of approximately $15 million and had cash, cash equivalents and short-term investments of approximately $12 million. To summarize, our third quarter results reflect a commitment to advancing our key clinical programs while closely managing our cash position. We remain steadfast in our belief that we have sufficient funds to see us through the Molgradex and AeroVanc data read-out with additional runway into the latter part of 2020. As we look to the future, we will opportunistically manage our financial risk with a focus on maximizing near and long-term shareholder value. I'll now pass the call back to Rob.

Thank you, Dave. And to everyone on the call, we appreciate your continued support and interest in Savara. As you've heard, in Q3 we made substantial progress against our priorities while executing with strong fiscal discipline. In 2019, we're planning for read-outs from three of our clinical studies, two of which are pivotal. And we continue our concerted efforts to identify and evaluate promising assets that could add value to and expand our top line. At Savara, we all share the same passion for transforming science into real life therapies that could improve the lives of people living with rare lung diseases. I want to thank the Savara employees, all of whom are united in our mission and work every day to deliver against our objectives. Our Company is highly focused on fueling innovation and growth within an environment of operational excellence. This mindset will create sustained value for our shareholders, employees, and most importantly the patients we serve. At the beginning of the call, Anne, encouraged shareholders to submit questions by e-mail to [email protected]. Time permits we'll answer these and other questions that have been submitted to our Investor Relations team. And with that I'd like to turn the call back to the operator, for analyst questions.

[Operator Instructions] Our first question today will come from Liisa Bayko of JMP Securities. Please go ahead.

I'm wondering if you can talk a little bit more about the upcoming interim analysis and if you can talk about sort of your expectations, how many patients do you think you'll have data from and how long if you could remind us? And then any potential sort of adaptive nature of the overall study based on what you see here? Is there anything you might consider changing, do you have that flexibility if you could give us just some visibility that'd be great.

So, I believe we already addressed this in our prior call. So what we expect to have at this point when we're going to give out the interim results is six months completion for about [indiscernible] patients and for these patients we would have the smear results, so then allowing us to do direct microscopy. And for those same subjects we would have at least 16-week cultures and that is due to the right timing of the cultures, as I'm sure you know. And so the focus really will be largely on those early microbiology results. And of course then we're going to read these safety. We're hoping of course to see some patients turn negative and the smear being ahead of the cultures will be the primary focus. Now to your other question about what adaptability the study has. Obviously, we're not totally sure how quickly responses may happen and to what extent and what is the frequency of positive responses. So if it turns out that we see signal of efficacy and the safety is good, there is a possibility because this is an open-label study that we could then extend the treatment period beyond what was originally planned as a six month study.

But will we still have the final endpoint of the final read-out and in fact why have you extended or that would just be kind of like a...?

Well, should the study be extended than we would most probably still be able to give information at that time point for the original six-month period but then obviously with extension that final outcome would be pushed out deeply along.

And then thinking about your new combination antibiotic, can you may be discuss some areas under consideration whether it make sense to look at the combination and that's just for me. Thank you.

Well, so bearing in mind that initially this product was studied in ventilator associated pneumonia that is of course one area of interest for us. And there are also other chronic lung infections where attempts have been made with mixed results and a lot of learning has been gained through those types of the endeavors. And so we're right now really refining our strategy and we have not yet disclosed what exactly will be the focus as we’re getting more ready than to initiate a clinical study we will give more information about our chosen first strategy.

Our next question will come from Dewey Steadman of Canaccord. Please go ahead.

I guess on IMPALA-X there's that 15 patients that you weren’t able to snag it. There still an opportunity about patient who otherwise lost a follow-up. And then on IMPALA itself, is there FDA concordance on the structure of the endpoint in the study I guess what [indiscernible] us that’s one of the primary endpoints and is WLL time to whole lung lavage still in the endpoint hierarchy for that study. And how important is it to show a reduction in frequency of whole lung lavage in such a short duration study? Thanks.

Thanks Dewey for the questions along with them I'll try to keep a good tab in all of those. Let me - start with the IMPALA so first of all in terms of the hierarchy the primary endpoint is based on oxygenation. So that is the A-a gradient and it will be primarily analyzed and then thereafter the secondary endpoints which are under focus are the St. George respiratory questionnaire for quality of life. The six minutes walk distance as a functional endpoint and then the time to whole lung lavage. But those are not analyzed in sequence rather they’re going to be parallel analyzed and that we’ll then correct for multiplicity. So anyone of those can then equally give us a success. In terms of the whole lung lavage endpoint, you're quite correct that this is something where the event rate will actually been dictate how useful that is as an endpoint. We do believe that is one of the most meaningful endpoints and if one runs to study with insufficient amounts of whole lung lavage is that could not be terribly informative. And it is something that the FDA will definitely be looking at and we have high hopes that our study will be able to show either a substantial reduction or even elimination of the need for lung lavage in the active parts.

Great and then….

I think you asked what was your question around - the 15 patients was deemed by the investigator not to be suitable for long-term therapy and will not be enrolled.

And then the commercial build related to aPAP, it’s exciting that at least of evolve in to our commercial organization and how should we approach that build related in terms - related to terms of hiring and spend timing?

Right now we're focusing on the core leadership and some of the early activities that relate to studies of health economics, pricing and reimbursement research and KOL development and the like. And so this is still in terms of investments, it's very reasonable and subject then to positive data that is the time point when then more substantial investments will be triggered.

Our next question will come from David Steinberg of Jefferies. Please go ahead.

Just being away from clinical trial for a second, I know that the part of business development since while back you obviously have a lot in your place since the trial [indiscernible] ask about external opportunities, are you looking a lot of things do you expect to do anything in the next six to 12 months. And if you are buying assets, how do you feel about that relates in a joint market environment? Thanks.

So in terms of the corporate development activities, we are continuously assessing different options so but as you can imagine that is not something that companies comment on prior to something materializing. So we do not give any guidance whatsoever as to when something might happen or if something might happen but as Rob quite elegantly summarized, this is the core of our growth strategy is to cover orphan lung diseases broadly and this is what drives us and we definitely want to bring more science into a great applications in this space.

We'll move on to the next question. The next question will come from Michael Higgins of Ladenburg Thalmann. Please go ahead.

Question for you on OPTIMA, I'm not sure if you stated this or not which is I guess why I am asking it. Do we stated how many patients you’ve enrolled with [indiscernible] and if so if you can break that out for us?

Well we haven’t actually stated that, but I suppose, it's fair to mention I'm going to give you an approximate number is about one third abscesses and about two thirds max this is situation. And on the other hand some of our patients will be on simultaneous antibiotic treatment together with Molgradex and others will be getting Molgradex mono-therapy for the product.

Regarding the Cardeas acquisition just to follow-up in your comments earlier Phase II ready. Is it reasonable to consider your pivot risk amikacin with - so to pair that asset amikacin/fosfomycin with Molgradex. And if so would you start with the greatest asset this monotherapy like you wait for a Molgradex result for making that determination any feedback there that would be helpful? Thanks.

The answer to that question is two-fold. On the one hand, we're very much big believers of the anti-infective immunotherapy concept by using inhaled GM-CSF for lung infection. And we do believe that in a number of conditions, the optimal result might be obtained by combining that to antibiotic use one way or another. Whether it's inhaled or as in the case of our current NTM study it's a bunch of oral treatments. How exactly we then adopt that into a clinical trial design depends on the exact choices indication and therefore the outcome of the OPTIMA is - it may or may not have any impact on that choice.

You told us that you look for or will look for the indication that you've identified in Q1 with results through Molgradex coming out in just maybe a different indication. So I appreciate your comments though. Another question is regarding the commercial preparations for Molgradex. Just a follow-up there how many reps and how they give the sales force might you develop for Molgradex? Thanks.

So that number has not been exactly specified. I mean we’re talking about something that is more than one would do for instance in CF where 10 to 15 several reps would be sufficient. We’re unlikely to do as many as one would do for NTM where up to 70 or 80 reps have been put together in a sales force by our peers. So that will give you a little bit of guidance maybe in the 30 range is what we're thinking.

Showing no additional question I would like to turn back to Rob Neville. Thank you.

Thank you, Allison. And so we received two questions into IR and Taneli you want to roll, so I am going to hand both of these to you. First one is what is the lack of success with the IMPALA study? In power opinion what is the lack of success?

Of course we can give a biased opinion on that, and yes I think it’s fair to say that this is the path of the disease where the mechanism is very well understood and based on off label used and further studies and how GM-CSF is known to work. So it's fair to say that the risk is really in the trial not so much in the concept itself. In terms of the trial this is our case we have very well power trial. The primary endpoint is powered at a level of well above 90%. This is the oxygenation measure ADA tool. And through our study expansions up to the 139 that we now enrolled, we have also been able to power the two continuous secondary endpoints that are under focus the St. George and six minutes walk distance at level of 90%. So if you then think about what is the likelihood that we will succeed, I suppose the only answer we can give is that it's very hard based on what is known. I should also mention that because the study does contain an open label period, we are getting very positive feedback from investigators based on that open label practice.

And then the second question is when we talk about in IMPALA-X what is the importance of IMPALA-X?

Well so the IMPALA-X whereas it was originally designed to be able to provide patients with continued drug, it actually also serves as a surrogate of patient satisfaction. So because if all patients that participated in the IMPALA study will have gone through an open label period of getting drug for at least six months, their willingness to then enroll into a continuation study and to continue treatment we believe is a really good sign and that tells us a lot about the patient satisfaction during that study period at least the open label even if patients might have been randomized onto placebo in the initial six-months of the study. So that's how we view this study. Obviously this is no actual signs but as long as we have high enrollment into that IMPALA-X, we certainly feel good about it.

Okay, that's it. Thank you Taneli, and Dave, and Anne and everyone else who have dialed in. We really appreciate you taking the time.