SVRA - NASDAQ

Welcome to the Savara conference call. [Operators Instructions] An audio webcast of this call will be available on the Investors section of Savara's website at savarapharma.com. This call is subject to copyright and is the property of Savara. All recordings, reproduction or transmissions 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, Head of Investor Relations and Corporate Communications at Savara.

Good afternoon and thank you for joining us on today's call. A press release reporting our third quarter 2019 financial results was issued earlier today, November 7, 2019, and can be found on the Investors section of our website at savarapharma.com. If you've not received this release or if you'd like to be added to the company's distribution list, please e-mail me at [email protected]. This call is also being webcast live. And approximately one hour after the call, a replay will be available on the company's website and will remain available for the next 30 days. A telephone replay will also be available through November 14. Please note that today's conference call and webcast 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, Thursday, November 7, 2019, 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'll take analyst questions at the end of the call. However, we would also like to encourage shareholders to submit questions via e-mail to [email protected]. Time permitting, we'll address these questions alongside any of those received by our IR team. Joining me on the call today are Rob Neville, Chief Executive Officer; Taneli Jouhikainen, President and Chief Operating Officer; and Dave Lowrance, Chief Financial Officer. I'll now turn the call over to Rob.

Thank you, Anne, and welcome to everybody. We do appreciate you joining us. But before we get started and deep into the call, I want to emphasize that despite the challenging few months, we maintain our ardent belief that we have two promising programs in Molgradex and AeroVanc, and our vision to become the orphan lung disease company remains squarely intact. Our focused and dedicated team of employees are committed to this vision. And for all the reasons we'll outline today on the call, we are optimistic about the future. Now regarding the status of our Molgradex aPAP program. At the beginning of October, the FDA provided us with the written responses to the Type C meeting. And as we announced, the agency's feedback indicated that the data included in our recent package did not provide sufficient evidence of efficacy and safety. However, we, along with our clinical advisers, remain steadfast in our belief that the drug works. In fact, on the day we announced the FDA response, data from our IMPALA study were presented in an oral presentation at the Annual Meeting of the European Respiratory Society, or ERS. While we will clearly need to provide additional evidence to meet the FDA's requirements, we believe that despite narrowly missing the primary end point, the totality of the data demonstrate that Molgradex could address significant unmet need in this rare disease. Prior to and following the ERS presentation, we regularly hear from thought leaders who feel the same way, suggesting that Molgradex reversed lung pathology and pathophysiology of aPAP and improved clinical outcomes. Taneli will go into more detail on these data in a few minutes. And for those of you who are interested, the ERS slide deck is posted on our website. Now on to the regulatory front. Since receiving the FDA's feedback, we continue our dialogue with the agency to get more comprehensive insight on their feedback and seek their input on the shortcomings related to the IMPALA data as well as the arguments we presented in the briefing package. We believe this process will provide the clarity we need to determine the best regulatory path forward, and we are committed to making Molgradex available to patients as soon as possible. In addition to the U.S., we expect Europe to be a key market for Molgradex, and we plan to engage the European Medicines Agency in discussions regarding the suitability of our current data for a European filing. As you can imagine, regulatory clarity, in general, is our top priority in the coming months. I want to emphasize that we are committed to working through the challenges we face in our goal of getting this drug to market on behalf of all PAP patients is unwavering. We continue to believe that the data from the IMPALA study show that Molgradex produces a clear treatment effect. It may take us longer than originally expected to get approval, but we believe we will get there. Thank you for your support and patience on this important journey. Taneli will now summarize the Molgradex data presented at ERS and update you on our other programs.

Thank you, Rob, and good afternoon, everybody. As I review the IMPALA data, I'd like to turn your attention to the slide deck that accompanies this webcast. So to begin with, I will start by reminding you all of the study design that included a placebo-controlled period with two active treatment arms, a daily dosing of 300 micrograms and a daily dosing every other week, intermittent, arm for 24 weeks, comparing these active arms to placebo. This was followed by a 24-week open-label period where patients all got the alternating treatment regimen. A subset of the subjects were allowed to or had an option to enroll into what we call an IMPALA-X, which is an open-label safety extension study that allows patients to continue on the alternating regimen for up to three years. The primary end point of the study was changed from baseline in the arterial-alveolar oxygen gradient, or A-aDO2 in short. Secondary key end points included 6-minute walk distance, the St. George’s Respiratory Questionnaire, or SGRQ, as well as time to whole lung lavage, which was allowed as a rescue treatment during this study. The statistical analysis sequence that was predefined included, first, the primary end point assessment. And subject to that meeting the statistical significance threshold, the analysis would then have continued over to the secondary end points, which were all analyzed simultaneously. Now because we did not meet statistically the primary end points, all the subsequent analysis formally cannot be claimed to be statistically significant. However, in this presentation, I will use that term for ease of communication, regardless. Also, in this presentation, instead of reviewing the data in the sequence of the statistical analysis plan, we will present the data in the sequence of the disease process. So that means starting from the disease pathology, which is the excess of surfactant in the lungs, and then moving over to the pathophysiology, which is the impaired gas exchange caused by the excess surfactant, and then over to clinical outcomes. Before covering the efficacy data, a brief summary of the safety. As you can see from the graph, we had almost indistinguishable numbers of adverse events between the different treatment arms, whether that's just all adverse events or serious adverse events. And a similar picture in the respiratory system adverse events, as shown on the right. We had a very low dropout rate, only a few percent in the active arms and a little higher, about 9%, in the placebo arm. We observed no clinically significant changes in any of the laboratory values attested for safety, and we had no evidence of forming anti-drug antibodies over and above what is observed in the patients as the disease-causing anti-GM-CSF antibodies. So to begin with, on the pathology. So aPAP is a disease of surfactant excess, and a good way to visualize this is through high-resolution CT scan. This graph here shows the baseline and week 24 CT scan results using what is called a ground glass opacification score as a measure. This is a score from 0 to 15, where 15 represents a fully cloudy surfactant-filled lung, whereas 0 would represent a normal air-filled lung. What we see is a clear dose-frequency-dependent and highly statistically significant improvement in the continuous dosing arm compared to placebo. So in other words, we demonstrate here that we are able to remove the excess surfactant out of the lungs. Another way to assess the disease pathology is through various biomarkers that are measured from the blood. And in our study, we showed in a broad range of biomarkers, again, a consistent dose-dependent improvement in the continuous dosage arm, where almost all of these biomarker impacts were statistically significant, with the exception of the surfactant protein A, which is, in fact, a biomarker that is not only lung-derived, so perhaps not surprising that we didn't see much of an effect there. So taken together, the biomarkers and the CT scans, in particular, do suggest that we had a clear reversal of disease pathology overall in these patients. How does this then translate into the pathophysiology, the gas exchange that is impaired because of the surfactant overload? The primary end point shown here was to assess that. And we did see consistent improvement over time in the A-aDO2 by about 12 millimeters mercury, which was about the same as was expected based on prior open-label studies. What was surprising, though, for us was the extent of the placebo effect, and this placebo effect really was what caused us to fail the statistical test of this end point. So when we analyzed what had happened, we dug deeper into the data and found some unusual values in patients using supplemental oxygen during the testing. And this was allowed by the protocol for severe patients who were unable or unwilling to discontinue their supplemental oxygen treatment during the arterial blood sampling. And we expected this to have little effect on the change from baseline of this parameter as long as the same flow rate was used on all time points as following the baseline. Now this graph here shows the tight correlation between blood oxygen and the A-aDO2, which is a calculated measure, having the oxygen level as an input -- as one of the inputs. And here, low oxygen concentrations correlate very tightly with increasing A-aDO2 values. And the subjects who are on supplemental oxygen are shown here in color on the right, exactly where they're supposed to be because the added oxygen actually moves the correlation curve over to the right in its entirety. However, patient B, shown in red, is nowhere near where this patient is supposed to be. And so this suggests that testing the patients on oxygen is not necessarily reliable. So accordingly -- according to the ICH Q9 statistical guideline, we decided to exclude all patients who had been testing -- tested during the supplemental oxygen in a revised primary analysis set. The results of this test is then presented alongside with the primary analysis, shown -- and the revised test is shown on the following slide here. What we observed is a reduced placebo effect and a bigger treatment effect that now is statistically significant between the continuous dose and placebo. And this result is more or less the same, regardless of whether we exclude the one gross outlier or all patients that were tested during supplemental oxygen. Now another way to test gas exchange and the impact of surfactant removal from the patient's lungs is the DLCO, the diffusion capacity for carbon monoxide. This is an independent test mechanistically from the A-aDO2 in that it is based on breathing a test gas and then analyzing how much of that test gas diffuses into the circulation in a given time. So here, we expect to see improvement in the DLCO percent predicted. And we certainly do see that consistently from time point to time point with a treatment effect that is highly statistically significant between the continuous dosing arm and placebo. So taken together, especially the revised analysis set of the A-aDO2 and the DLCO, which are independent measures of gas exchange, we do believe that this represents demonstration that removing surfactant in patients with PAP using GM-CSF translates into a meaningful improvement in their gas exchange status. So how does that all translate into clinical outcomes? One of the key secondary end points that we measured was SGRQ, the St. George's Respiratory Questionnaire. A lower score in this patient-reported outcomes tool represents better health status. And what we observed was quite an impressive improvement with both treatment arms compared to placebo, and again, highly statistically significant. In analyzing the SGRQ effect further, we conducted responder analysis using different thresholds for response, starting from 4 points up to 8 points, and 4 points, representing what is considered clinically meaningful in other chronic lung disease such as COPD. And in all of these different thresholds, we observed statistically significant improvements in response rates with the odds ratios ranging from almost 3 in the 8-point threshold to about 4 in the lower threshold of 4 points. Further, in analyzing the SGRQ, we've evaluated the different domains of this tool, which consists of daily activities, a general impact on patient's life as well as respiratory symptoms. And we observed improvements across all of these domains with the activity and impacts for it being statistically significant on their own. So taken together, we believe this represents a very robust result on the SGRQ. Of the other secondary end points, the 6-minute walk distance also showed a trend in favor of the continuous dosing arm and what appears to be dose frequency dependency as well. It's notable that in PAP patients who are not very old, there is a tendency to be able to walk quite far. So it is possible that we started to approach a bit of a ceiling effect, and this may have contributed to our result not being quite as large in terms of the treatment effect as we had estimated beforehand, and therefore, potentially contributed to failing with the statistical test of this end point. Furthermore, in terms of use of other treatments, notably the whole lung lavage that was used as a rescue treatment, we also had a trend in favor of both treatment arms. However, due to the low event count for this procedure and the relatively short treatment period of 6 months, we failed to reach statistical significance on this end point,. But the rate ratios of lung lavages between the active arms and placebo were certainly quite encouraging. And we very much look forward to seeing how this has progressed in the open-label part of our study when patients have been exposed to a longer treatment duration. And so finally, overall, as a cumulative measure of a chronic lung disease, we are presenting here what happened to the hemoglobin values over time. So hemoglobin tends to increase as a compensatory mechanism for the hypoxia in chronic lung disease and likewise in chronic heart disease, a little similar to a normal person in going to the mountains and increasing hemoglobin as a response to the thin air, and then upon return back to sea level, the hemoglobin increase reverses back to normal. And here, we're seeing exactly the same happen, a consistent time point-to-time point reduction in hemoglobin overall in the treatment arm and this being almost statistically significant compared to the placebo. So in our opinion, this very nicely fits with the reversal of the other disease processes and captures the overall improvement over time in these patients with our product. So looking at the different disease elements. In summary, we have established that the pathology, the physiology, health status and function and use of rescue therapies with many different end points either improved statistically significantly or trended in favor of the drug. And so in totality, really, this all starts from the known mechanism and the known biology of aPAP. The anti-GM-CSF antibodies are known to be the cause -- the root cause of this disease. And therefore, our treatment to give supplemental GM-CSF directly into the lungs is a perfect fit for this mechanism. The prior evidence suggests through different open-label studies and clinical practice, using off-label drug, that this onset of anti -- or GM-CSF therapy is impactful. In our study, we have shown the reversal of lung pathology and lung pathophysiology as well as improvement of clinical outcomes, the reduction of rescue treatments, reversal of a systemic adaptation to chronic lung disease, and all of these, in fact, being dose frequency-dependent, further contributing to the strength of this dataset. We do have strong KOL consensus that the drug works, both based on the prior studies as well as now based on our IMPALA study. And so given the totality of data that I've just outlined, we are now working with the regulatory agencies to figure out the best way forward for our product. This includes continuing discussions with the FDA and initiating discussions with the EMA in the coming months. In the meantime, our other programs continue to advance. In our second Molgradex program in which we're conducting 2 earlier-stage exploratory clinical studies, we are evaluating Molgradex for the treatment of nontuberculous mycobacteria, or NTM lung infection. OPTIMA, which focuses on people who are not impacted by cystic fibrosis, or CF, is progressing in line with our guidance, and we still expect to provide top line results in the first quarter of next year. The ENCORE study, which we initiated earlier this year, continues to enroll people living with CF with a targeted enrollment of approximately 30 subjects. And lastly, let's move on to AeroVanc, which is our investigational program for the treatment of methicillin-resistant Staph aureus, or MRSA lung infection in people with CF. The pivotal AVAIL AeroVanc Phase III study has been fully enrolled in the adult population for about a year now. As of November 1, the primary analysis population, that is the younger patients between 6 and 21 years of age, has enrolled 123 patients out of a target of 150. Therefore, there's just 27 left to go until we reach our total enrollment target. As we have explained before, the screen failure rate for the study is in the 50% range as subjects who are candidates to enroll are often very sick. And pulmonary exacerbations continue to occur between the time of screening and randomization. Additionally, at the time of screening, many subjects failed to meet the required lung function criteria for the study. Given the current enrollment rate that we've seen over the last quarters, we reaffirm our guidance of enrollment completion in the first half of 2020, with top line results expected later this year -- or that year or in early 2021. I would like to underscore that this is a key program for us, and we are working hard to complete enrollment of this important study. I would also like to acknowledge that despite advances in the new CFTR modulator treatments, feedback from the CF Foundation as well as our KOLs suggests that managing chronic infection and inflammation continue to be key challenges in the management of CF. And addressing these issues, therefore, remains a high priority for new drug development. I'll now turn the call over to Dave, who will provide you with a financial update.

Thanks, Taneli, and hello, everyone. Like last time, I'll begin with what I suspect is most important to you regarding our financials. As of September 30, 2019, we had cash, cash equivalents and short-term investments of $106.3 million with approximately $25 million of debt. As you know, we've closely managed our spend over the years, and we will continue that same approach as we move forward. As a result, under the current operating plan, we believe we have sufficient capital to get us well into 2021. With respect to the P&L, Savara's net loss attributable to common stockholders for the three months ended September 30, 2019, was $12.4 million or a loss of $0.30 per share compared with a net loss attributable to common stockholders of $12.6 million or a loss of $0.36 per share for the three months ended September 30, 2018. Research and development expenses were $9.6 million for the three months ended September 30, 2019, compared with $9.5 million for the three months ended September 30, 2018. The increase was primarily due to $600,000 in increased costs associated with the development of Molgradex, which was partially offset by $500,000 in decreased AeroVanc study costs related to timing of Phase III activities. General and administrative expenses for the three months ended September 30, 2019, were $2.8 million compared with $3.1 million for the three months ended September 30, 2018. The decrease was primarily due to lower compensation charges incurred in the third quarter of 2019 as compared to the three months ended September 30, 2018. I'll conclude by emphasizing that we continue to closely manage our expenses, and we have focused our spending on the work that we deem critical to advancing our key programs and activities. And now back to you, Rob.

Thank you, Dave, and thanks, everybody, for your time. Before we close our prepared remarks, I just want to reiterate that we are developing a product that we believe could completely transform the management of aPAP, and therefore, advancing Molgradex to approval continues to be our highest corporate priority both in the U.S. and in Europe. And as conversations with the FDA and EMA progress, we will share material outcomes as the key decisions are made. And lastly, I am proud to say that our practice of financial discipline has kept us in a healthy cash position, as Dave just covered, and this now allows us to adjust to these changed circumstances. I want to reaffirm that this focus will continue to define Savara in the quarters ahead as we advance our pipeline programs to the next milestones. And as always, your continued support is very much appreciated. So let me go ahead and hand the call back to John to open for any analyst questions.

[Operators Instructions] At this time, there are no questions in the audio queue. And I would like to turn it over to Anne Erickson.

Yes. We've gotten a couple of questions that came in. The first one is, is there any hope of being able to submit a BLA using IMPALA data? Or did the FDA indicate you cannot file a BLA?

So let me take that one. So like we said, the agency indicated that the information we provided did not provide sufficient evidence of efficacy and safety. Therefore, the onus is on us to give the FDA additional information to meet their requirement for approval. And as we've said, we're in dialogue with them about the best path forward, and we have not yet finalized any decisions.

There's two more here. You've mentioned in the past that you may have to conduct a second Phase III study. Are you still planning on that? And when do you think that study will start?

So we are in ongoing discussions with the FDA about the best path forward for Molgradex. The second Phase III certainly is an option, and we're taking the necessary steps to assess this.

And the last one here is, why do you think you still have a chance to submit a filing in Europe based on the IMPALA data?

We are trying to meet the EMA regarding the suitability of our current data for filing shortly. We've not yet indicated -- we've not yet initiated those discussions, and we're unable at this point to speculate on the outcome of such -- that process.

And that was it.

Okay. Well, I guess that's it. Thank you for the questions, and we do also take additional questions over the IR e-mail. I think there was a few others that we didn't get to, but I think they're very similar to the questions that we've already answered. If not, then please feel free to send an e-mail to IR, and we will do our best to address those by email. Thank you, everybody.