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Edited Transcript of MSTX earnings conference call or presentation 9-May-18 9:30pm GMT

Thomson Reuters StreetEvents

Q1 2018 Savara Inc Earnings Call

SAN DIEGO May 17, 2018 (Thomson StreetEvents) -- Edited Transcript of Savara Inc earnings conference call or presentation Wednesday, May 9, 2018 at 9:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* David L. Lowrance

Savara Inc. - CFO

* Ioana Hone

* Jaakko Taneli Jouhikainen

Savara Inc. - President & COO

* Robert Neville

Savara Inc. - Co-Founder & CEO

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Conference Call Participants

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* David Michael Steinberg

Jefferies LLC, Research Division - Equity Analyst

* Dewey Steadman

Canaccord Genuity Limited, Research Division - Senior Specialty Pharma Analyst

* Jonathan Patrick Wolleben

JMP Securities LLC, Research Division - Associate

* Michael John Higgins

Ladenburg Thalmann & Co. Inc., Research Division - MD & Senior Biopharmaceuticals Equity Research Analyst

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Presentation

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Operator [1]

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Welcome to the Savara, Inc. Conference Call. (Operator Instructions) 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 conference over to Ioana Hone, Head of Investor Relations at Savara.

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Ioana Hone, [2]

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Thank you, Brian. Good afternoon, and thank you for joining us. A press release reporting our first quarter 2018 financial results was issued earlier today, May 9, 2018, and can be found on the Investors section of our website at 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 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, May 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 per 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 the live webcast page or send an e-mail to IR at savarapharma.com, and time permitting, we will attempt to address some of those as well as others recently received by our Investor Relations team.

With that said, I'd like to turn the call over to Rob Neville, Chief Executive Officer of Savara.

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Robert Neville, Savara Inc. - Co-Founder & CEO [3]

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Thank you, Ioana, and good afternoon, everybody. I am excited to be speaking to you today, and thank you for joining us. As usual, with me here in Austin, Texas is Taneli Jouhikainen, our COO and President; as well as Dave Lowrance, our Chief Financial Officer.

At the end of April, which is about 10 days ago, we did celebrate our 1-year anniversary as a public company. I believe we have accomplished quite a bit in this short time, and we continue to learn and grow as an organization in many respects. In the area of corporate communications, we'd like to start changing these quarterly meetings to be a little more engaging, with a focus on more granular information on our enrollment status, which will help provide our shareholders with better visibility into the progress of our clinical studies and some concrete data points to support our guidance. With 4 clinical studies now ongoing, those being IMPALA, IMPALA-X -- and this is a new study we'll talk a little bit more about momentarily -- OPTIMA and AVAIL, our focus for the remainder of the year will continue to be on the advancements of these studies.

In parallel, we're actively exploring further expansion of our top line as we continue building Savara into a prominent orphan lung disease company. Overall, we see many opportunities for growth and exciting milestones during this year that we believe will benefit our shareholders, which we will outline for you shortly. First, let me hand the call over to Taneli, who will delve into the progress of our clinical studies.

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Jaakko Taneli Jouhikainen, Savara Inc. - President & COO [4]

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Thank you, Rob, and good afternoon, everybody. Let me begin with our pivotal Phase III IMPALA study of Molgradex, our inhaled GM-CSF for the treatment of autoimmune PAP. First, as a reminder, we -- as we already disclosed earlier in our -- our IND was approved by the FDA in February, allowing for the expansion of the IMPALA study into the U.S. as well as an increase of the sample size from 90 to 135 patients, based on a blinded interim check variability into key secondary endpoints. As of the end of Q4 2017, we had enrolled a total of 80 patients. Subsequent to that, during the first quarter of this year, we enrolled an additional 16 patients, ending the quarter with a total of 96 patients.

So in order to enroll the remaining 39 patients by the end of Q3, the quarterly enrollment rate will need to increase slightly.

We expect to achieve this through continued efforts at all of our original sites and in particular, through the activation of up to 8 sites here in the U.S. as well as up to 9 new sites in South Korea, Australia and several European countries. Some of these sites have already been initiated, and altogether, the new sites will almost double the number of sites to a total of 39.

Looking at our current projections by country and by site, we do remain optimistic that we will achieve our role of completing enrollment by the end of the third quarter, with top line data expected in the second quarter of 2019.

Next, I would like to spend a few minutes introducing you to a new study that we have recently initiated called IMPALA-X, focusing on patients who have completed the 12-month IMPALA study. IMPALA-X is an open-label safety extension study that fulfills our product call commitment to provide continued access to the study drug for patients completing the IMPALA study and also allows us to collect long-term safety data beyond 12 months. We plan to start the study in the majority of our sites in a rolling fashion as patients start to reach the end of the main IMPALA study. Some of the key aspects of the IMPALA-X study are as follows: first of all, the dosing is the same as in the open-label portion of the IMPALA study with a week-on, week-off alternating regimen; patients can continue participation in the study for up to 3 years; we will primarily focus data collection on safety parameters and will also measure many of the efficacy endpoints of the IMPALA study to assess maintenance of the treatment effect in responding patients.

While very early still, with only 2 patients enrolled, we are very encouraged by the high interest toward the study and thereby toward the continuation of the study drug administration. And going forward, we believe the enrollment metrics of this study may provide some very interesting early insights into the level of satisfaction with Molgradex as well as further information relating to the desirable duration of treatment.

So moving on, next I would like to update you on our Phase IIa OPTIMA study of Molgradex for the treatment of NTM lung infection. We initiated the study in line with our guidance in March, and since then, we have had a very active 1.5 months with more than a dozen screenings and 4 patients who have already started treatment.

In this study, we should note the lag time from screening to enrollment is typically quite long due to the slow culture times for NTM.

As we have outlined previously, we expect to complete enrollment of all 30 patients by Q3 of 2018 and plan to report top line data in the second quarter of 2019. However, since OPTIMA is an open-label study, there is a possibility that we would provide some interim results already by the year-end, depending on the enrollment and other factors.

So what makes the study really exciting is this: if Molgradex works like we expect in NTM, we do believe this could represent the beginning of a paradigm shift in the treatment of refractory lung infection with localized stimulation of the innate immune system, in other words, with an anti-infective immunotherapy. At best, this could open up a whole new world of treatment opportunities, either with or without concomitant use of traditional antimicrobial products.

And so finally, I would like to provide you with a brief update of our pivotal Phase III AVAIL study of AeroVanc, our inhaled vancomycin for the treatment of MRSA lung infection and cystic fibrosis. At the end of September last year, we initiated the study in line with our guidance and enrolled our first 9 patients during Q4 of 2017. Subsequent to that, during the first quarter of this year, we enrolled an additional 53 patients, for a total of 62 enrolled out of the required 200.

The study is currently being conducted at more than 70 clinical sites across the United States and Canada, with a few more sites still being added in the current quarter. The total enrollment number as well as the current rate of enrollment are certainly encouraging and in fact, slightly exceed our interim goals. Enrollment so far includes subjects of all ages, whereas the most relevant metric to follow is our primary analysis population of younger patients, 6 to 21 years of age. This population comprises 150 subjects, 26 of whom have already been enrolled by the end of the first quarter.

With almost all sites now enrolling, we have already observed a nice increase in the enrollment rate of the younger subjects, too. And we expect the completion of the adult enrollment this month as well as the approaching summer to further enhance the enrollment of the younger subjects.

Therefore, we remain optimistic that we will continue to meet our enrollment targets, and we maintain our guidance for enrollment completion of AVAIL in the first quarter of 2019, with top line data expected therefore in the second half of 2019.

So with that, I would like to hand over the call to Dave, who will briefly review our first quarter financial results. Over to you, Dave.

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David L. Lowrance, Savara Inc. - CFO [5]

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Thanks, Taneli. Good afternoon, everyone. With respect to our first quarter 2018 results, our net loss attributable to common shareholders was $26.8 million or a negative $0.88 per share as compared with a net loss attributable to common shareholders of $5 million or a negative $1.65 per share for Q1 2017.

Research and development expenses for Q1 were $8.5 million compared with $2.9 million for Q1 2017, and this increase was due to several factors, including $2.7 million in additional expenses associated with the development of Molgradex, including the expansion of the aPAP study in the U.S. and the commencement of the NTM study, an increase of $2.2 million in AeroVanc study costs related to Phase III activities and $0.7 million related to milestone and development costs of the Aironite study acquired in the merger with Mast Therapeutics in April 2017. General and administrative expenses in total were consistent when comparing Q1 2018 to Q1 2017, totaling $1.8 million and $1.7 million respectively.

Additionally, during Q1, we recognized a onetime noncash impairment charge of $21.7 million against the acquired in-process R&D related to the Aironite program which we have assumed in the merger. This onetime charge was due to the failed Phase II study of Aironite, and accordingly, we do not intend to further support or pursue the Aironite program.

As a result of the impairment, we fully wrote off the associated deferred tax liability of $4.6 million and recognized a tax benefit.

As of March 31, 2018, we had a debt balance of approximately $14.9 million and had cash, cash equivalents and short-term investments of approximately $85 million. As always, we aim to balance our financial decisions to the -- to best support the development of our product candidates while continuing to execute our clinical studies in a cost-effective manner. We continue to believe the company remains sufficiently funded to execute our current business plan into 2020.

Now let me hand the call back to Rob.

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Robert Neville, Savara Inc. - Co-Founder & CEO [6]

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Thank you, Dave and Taneli. Appreciate it. On the business development side, consistent with our vision to become a prominent orphan lung disease company, we've continued to actively evaluate opportunities for indication expansion and product acquisition. Our Molgradex product was acquired in 2016, and along with its expansion beyond aPAP into NTM, we believe it is now a highly-valued asset. We will continue to build on this success and to identify other promising indications and potential new clinical-stage assets. Our corporate goal in this regard is to add at least one new indication or clinical-stage assets to our pipeline within 2018.

As you can see from our achievements in the last quarter, we're very pleased with the steady progress we continue to make. I hope each of you will appreciate our efforts to provide greater transparency into our quarterly progress, including enrollment numbers and more granular status updates. 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 future progress in line with our guidance.

And so to summarize then, the key events to look forward to this year include the following: first, we'll be providing, as I just said, relevant quarterly updates related to our 4 ongoing studies; and I'm completing patient enrollment in our pivotal IMPALA study expected in the third quarter of 2018; and I'm also completing patient enrollment in our OPTIMA study expected in the third quarter of 2018; the possibility of interim results from our OPTIMA study this year, depending on enrollments and other factors; and lastly, updates related to the growth of our pipeline through possible new indication expansion or product acquisition.

Ioana did mention at the beginning of the call that we would like to encourage shareholders to submit questions by either the live webcast or just simply send an e-mail to IR at savarapharma.com and we will attempt to address them as well as others recently received by our Investor Relations team, time permitting after we address analyst calls.

And so with that, I'd like to turn the call back to Brian for analyst questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) And our first question today comes from Dewey Steadman with Canaccord.

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Dewey Steadman, Canaccord Genuity Limited, Research Division - Senior Specialty Pharma Analyst [2]

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And I guess on IMPALA-X. What do you consider to be a success in terms of the enrollment as a percentage of the original population? And what's the visit schedule like for those patients relative to the existing study? And then how do you anticipate FDA will want to see that data? Will you be able to have an interim look that you'll be able to submit with the NDA?

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Jaakko Taneli Jouhikainen, Savara Inc. - President & COO [3]

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Okay. So 3 questions. I suppose the first one is perhaps the most interesting. So what do we expect to see in terms of continuation into the extension study? We do actually hope to see the majority of patients roll over, but it is a little hard still to predict how well this will turn out because patient satisfaction is not necessarily the only factor. So in the coming calls, we will be sure to start giving you some updates of how things are progressing. As to the patient visit frequency, it will be quite infrequent, so there will be 6-month intervals between visits, and whereas, do we then submit an interim of this to the FDA? I would believe so, as this is going to be beyond what we have been requested to provide in terms of the length of treatment. So I think it will be a welcome addition to our package.

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Dewey Steadman, Canaccord Genuity Limited, Research Division - Senior Specialty Pharma Analyst [4]

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That's fine. And does that 6 months visit interval correspond with typical PAP patient visits to the tertiary specialists?

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Jaakko Taneli Jouhikainen, Savara Inc. - President & COO [5]

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It varies, really, a lot between patients. Sometimes, it could be every 3 months, quite often when they're in a better shape as we hoped they would be after they've completed the open-label part of our study. Every 6 months would not be out of range at all.

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Dewey Steadman, Canaccord Genuity Limited, Research Division - Senior Specialty Pharma Analyst [6]

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Okay. And then 2 quick financial questions. I don't want to leave Dave out. On the ATM, I know that there was a little bit of a draw. How much was left on that facility? And then how should we approach SG&A expense going forward? It varied quite a bit quarter-to-quarter. I know there's been some external things that have factored into that. But it's -- is this a good run rate that we're seeing this quarter going forward.

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David L. Lowrance, Savara Inc. - CFO [7]

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Dewey, thanks for both questions. Let me kind of hit them in reverse order. I mean, with respect to quarter-over-quarter, yes, as we said in the past, while we don't specifically give guidance there, I mean, what we can refer to is that we now have the 2 Phase III programs enrolling. And so as we talked about, when we intend to complete enrollment of those, costs will start to shift away. So if you look at the guidance of us saying that we remain confident that we can get into 2020 with our current cash on hand, you can kind of map out from there where that should put us over the next 24 months. And then also, actually, just to piggyback with respect to cost, again, while we don't give specific guidance, we have referenced this new IMPALA-X. The great news is that it's a fairly straightforward study with a limited number of patients, and therefore we would not expect it to have a significant impact on our current operations. And then, Dewey, on the ATM, as we announced back last year, I mean, we entered into that -- into a sales agreement with H.C. Wainwright. So that was an $18 million ATM. With the disclosure that we made with respect to the draw during the first quarter, I believe that puts us around the $16 million mark. But I will get and confirm that for you. That should be about where we're at. $16 million left available to us.

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Dewey Steadman, Canaccord Genuity Limited, Research Division - Senior Specialty Pharma Analyst [8]

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$16 million, okay, $16 million available.

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David L. Lowrance, Savara Inc. - CFO [9]

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I'll confirm that, yes, I'll confirm that. But we're close to that number.

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Operator [10]

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The next question comes from Liisa Bayko with JMP Securities.

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Jonathan Patrick Wolleben, JMP Securities LLC, Research Division - Associate [11]

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This is Jon on for Liisa. I just had a couple on OPTIMA. In your remarks, you mentioned that there is a -- what you're seeing is a typical lag time between screening and actually beginning treatment. I was wondering if you could talk a little bit more about that duration that you're seeing. And also what other factors beyond enrollment might play into us seeing some data this year from the study?

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Jaakko Taneli Jouhikainen, Savara Inc. - President & COO [12]

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Right. So the lag time is simply because the growth on the cultures takes long and -- to get the adequate baseline, and then there is just that time we need to wait. That's very typical for all NTM studies. To your question on like what other factors are included. So apart from the enrollment rate, obviously, response rates, speed of response and type of response. Those all will affect when we might have meaningful data to report. And thinking about the types of response, what we mean with that is that we may see effect in smear samples. We may see effects in quantitative cultures. Or we may see eradications, and this is sort of in the order of the hurdle getting elevated on that list. So depending on the clarity of the data and the amount of data, we may decide to report that as early as end of this year.

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Jonathan Patrick Wolleben, JMP Securities LLC, Research Division - Associate [13]

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Great. And then, Rob, I guess just one more. When you discuss bringing in potentially more programs, is this something where you're focused exclusively on more inhaled therapeutics? Or is there any chance of you guys kind of expanding your focus? Kind of what is your criteria of an appealing program?

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Robert Neville, Savara Inc. - Co-Founder & CEO [14]

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So the inhaled, the route of delivery, we're agnostic to that. But we are focused on orphan lung diseases. And I wanted to add -- I wanted to ask Taneli if he wanted to give some of the criteria that we're looking at in the business development side.

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Jaakko Taneli Jouhikainen, Savara Inc. - President & COO [15]

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Well, obviously, we would be looking at areas where there's a high need, niche therapies with little competition and great opportunity commercially, all the normal stuff as you can imagine. But definitely, there are many areas in the orphan diseases where, in fact, the diseases are very, very underserved and sometimes with really no efficacious treatments. And so I could flip through a dozen indications, but we don't want to do that because we prefer to then come out with information which is accurate rather than to speculate on what we might do and whatnot.

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Operator [16]

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The next question comes from Michael Higgins with Ladenburg Thalmann.

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Michael John Higgins, Ladenburg Thalmann & Co. Inc., Research Division - MD & Senior Biopharmaceuticals Equity Research Analyst [17]

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A couple of questions remaining here for me. If you could talk a bit more about IMPALA, IMPALA-X, what's been the feedback so far from the investigators on the safety and the tolerability? Any additional insights you can give us on what you're expecting in the dropout rate and rollover will be helpful.

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Jaakko Taneli Jouhikainen, Savara Inc. - President & COO [18]

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So first of all, on the safety, we have regular DSMB meetings, which is, of course, important because this is a blinded study, to a large extent. We have had 3 or 4 of those, and there has been no significant signals that would affect the conduct of the study. In terms of the -- well, you asked about dropout rates versus rolling over to the extension study. It's really early to be able to say how that will actually go. And bear in mind that there are sort of 2 opposing factors here. On the one hand, with very good satisfaction and good response and a happy patient, they may very well be highly encouraged to move on to the extension study. But if they feel very, very good, it could be also that they want to see, well, how about I try without. So we don't quite know how this is all going to play out. But like I said earlier, we do hope that and we believe that the majority of patients will, in fact, want to move to the extension. Did that roughly answer your question, Michael?

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Michael John Higgins, Ladenburg Thalmann & Co. Inc., Research Division - MD & Senior Biopharmaceuticals Equity Research Analyst [19]

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Yes. It does. Any requirement by the FDA on the number of patients in the open-label extension?

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Jaakko Taneli Jouhikainen, Savara Inc. - President & COO [20]

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So the requirement by the FDA is already satisfied by the IMPALA study. This extension study is not an FDA requirement, so it will be on top of what they would have -- what they had asked us. It is really to guarantee access to drug for patients who have then completed the study. So that's just a commitment that we have made in the protocol of the study. And -- but it does give us a really nice window to the long-term treatments and allow us to collect data in a structured way when we do this in the context of a study.

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Operator [21]

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The next question comes from David Steinberg with Jefferies.

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David Michael Steinberg, Jefferies LLC, Research Division - Equity Analyst [22]

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I got on late, so if someone has asked, I apologize. I wanted to discuss OPTIMA. What -- a couple of questions. What are the estimated costs for the new OPTIMA NTM trial, and how would you allocate the costs over the next several years for that program? Secondly, on OPTIMA, have you said -- or can you remind us -- or will the patient populations be stratified in the trial, to separately evaluate patients with avium and abscessus? And finally, also on OPTIMA, are you prepared if it does well in one strain, but not in the other?

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David L. Lowrance, Savara Inc. - CFO [23]

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So David, yes, this is Dave Lowrance. With respect to any of our studies, we haven't been giving specific program guidance on our expenses. But what we continue to reiterate to everyone is that under our current business plan, we're confident that we are adequately funded to get us into 2020.

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Jaakko Taneli Jouhikainen, Savara Inc. - President & COO [24]

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And so in terms of the study, we are enrolling patients, both with abscessus as well as -- and avium. And because it's open-label, are we stratifying? We're guiding the enrollment to be somewhat 50-50 or at least not totally pushing it to one or the other. Also, I would like to note that we are treating patients with Molgradex monotherapy on the one hand, but also some of the patients will be also on standard NTM triple therapy. And in those patients, we will add Molgradex on top as a combination. So we will have essentially 4 main groups of different types of patient profiles to look at.

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Operator [25]

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This will conclude one part of the question-and-answer session today. So I'd like to turn the conference back over to Rob Neville for any additional questions.

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Robert Neville, Savara Inc. - Co-Founder & CEO [26]

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Thank you, Brian. I appreciate that. We do have quite a few questions coming in, so we'll quickly see if we can address some of these.

The first one speaks about AVAIL enrollment, saying it looks excellent, with 53 patients enrolled last quarter. What do you believe the likelihood of having the study complete enrollment earlier than the Q1 2019?

And I will answer that. I believe that this will -- this is a possibility, but we're still very early on. We'd like to see the enrollment of the pediatrics first over a quarter or so and before we adjust our guidance.

And the next question came from an online investor. And this one, great job on the enrollment. Your team appears to be running a very lean burn rate. Could you please talk about possible indication expansion into TB?

And I will just say that we're not yet guiding on any other indication expansion beyond where we are, and however, even in TB, we'd first want to see the results in NTM, that being the cousin of TB before we pursued TB any further. Taneli, go ahead and add some color to that if you want.

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Jaakko Taneli Jouhikainen, Savara Inc. - President & COO [27]

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So I think, Rob, you're absolutely right that the NTM data will guide us in terms of what might happen with TB, but it's perhaps important to remember that much of the nonclinical and in vitro data is very consistent across different mycobacteria. So it does seem like there will be a high correlation between efficacy between those different bugs.

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Robert Neville, Savara Inc. - Co-Founder & CEO [28]

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Okay. Thank you, Taneli. Another question. Congratulations to you and your team for doing an excellent job. Could you share the number of patients enrolled in the NTM to date?

Now we actually did share with -- that a little earlier, and we have a dozen -- more than a dozen of screenings and 4 patients that were already enrolled. And so that was mentioned earlier during the script.

Another question that came online. With the IMPALA study, you stated you're activating clinical sites in the past quarter. Why are you only activating them now? And I'll hand that to Taneli.

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Jaakko Taneli Jouhikainen, Savara Inc. - President & COO [29]

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Well, so it's important to bear in mind that we made a considerable expansion of the study as subsequent to the FDA approving our IND. And in fact, we have, since then, added a total of 17 new sites. Not all of those are yet active. But in fact, we've done a tremendously good job, I feel, in ramping up the study. And we have had lots of interest in countries where we were not yet present, including the U.S., and that's a very important part of this expansion. So right now, we feel we're well positioned to push ahead with an expanded number of sites. And in the coming months, we hope to have very active enrollment.

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Robert Neville, Savara Inc. - Co-Founder & CEO [30]

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Okay. One last question that's come online. One of the key early clinical results that led to the study was the 2 patients previously treated for NTM. So 2 questions on that. Do you have any updates on these patients? And are these the only 2 NTM patients you're aware of that have been treated using GM-CSF?

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Jaakko Taneli Jouhikainen, Savara Inc. - President & COO [31]

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So to answer the latter question first. We are not aware other patients who would have been treated with inhaled GM-CSF, such that we would know any meaningful details about them. To the first question, so I have, in fact, spoken with Dr. Mark Wieland recently about his experiences. Now unfortunately, we cannot go into any detail about what exactly is going on simply because this is something that is through verbal communication and his personal publication information. But what I can say, the patients are still on drug and they are doing well. And Dr. Wieland is quite enthusiastic about the treatment, continues to be so.

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Robert Neville, Savara Inc. - Co-Founder & CEO [32]

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Okay. Well, that is it. I do appreciate you guys -- Taneli, Ioana and Dave for the call today. Welcome any feedback as well on the way we conducted the call and this idea of being more transparent and granular with our reporting. So please feel free to e-mail us at IR at savarapharma.com, or follow up with me directly after the call. Thank you, everybody. Take care. Bye.

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Operator [33]

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The conference has now concluded. I want to thank you very much for attending today's presentation. And with that, you may disconnect your lines.