What changed in this filing

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Item 5. Market for Registrant’s Common Equity

2022-03-30 compared with 2021-03-10 · 178 added, 1160 removed, 150 unchanged (90% of the section changed)

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

Market for Registrant’s Common Equity, Related Stock holder Matters and Issuer Purchases of Equity Securities.

Market Information

Our common stock trades on the Nasdaq Global Select Market under the ticker symbol “SVRA.”

As of March 30, 2022, we had approximately 119 record holders of our common stock.

The number of beneficial owners is substantially greater than the number of record holders because a large portion of our common stock is held of record through brokerage firms in “street name.”

Equity Compensation Plan Information

The table below provides information about our common stock that, as of December 31, 2021, may be issued upon the exercise of options and the vesting of RSUs under the following equity compensation plans (which are all our equity compensation plans;

provided, however, that new equity awards may only be issued under the 2015 Omnibus Incentive Plan and the 2021 Inducement Plan):

2015 Omnibus Incentive Plan (the “2015 Plan”)

Stock Option Plan (the “2008 Plan”)

2021 Inducement Equity Incentive Plan (the "2021 Inducement Plan”)

Non-statutory Stock Option Agreement (Inducement Award) between Badrul Chowdhury and Savara Inc.

dated November 26, 2019

Plan Category

Number of securities to be issued upon exercise of outstanding options, warrants and rights

Weighted-average exercise price of outstanding options, warrants and rights

Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))

Equity compensation plans

approved by security holders

Equity compensation plans

not approved by security holders

(1) The weighted average exercise price does not take into account the shares issuable upon vesting of outstanding

RSUs, which have no exercise price.

(2) Includes 4,864,881 shares issuable upon the exercise of outstanding options granted under the 2015 Plan, 997,375

shares issuable upon the vesting of RSUs granted under the 2015 Plan, and 198,960 shares issuable upon the

exercise of outstanding options granted under the 2008 Plan.

(3) Includes 300,000 shares issuable upon the exercise of options granted to Dr.

Chowdhury under his inducement award

agreement, 855,000 shares issuable upon the exercise of outstanding options granted under the 2021 Inducement

Plan, and 275,000 shares issuable upon the vesting of RSUs granted under the 2021 Inducement Plan.

Unregistered Sales of Equity Securities

None that have not been previously reported .

Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the consolidated financial statements and related notes appearing elsewhere in this report.

In addition to historical information, this discussion and analysis contains forward-looking statements that involve risks, uncertainties, and assumptions.

Our actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors, including but not limited to those identified under Item 1A “Risk Factors” in this report.

(together with its subsidiaries “Savara,” the “Company,” “we,” “our” or “us”) is an orphan lung disease company.

Our lead program, molgramostim nebulizer solution (“molgramostim”), is an inhaled granulocyte-macrophage colony-stimulating factor (GM-CSF) in Phase 3 development for autoimmune pulmonary alveolar proteinosis (“aPAP”).

Savara and its wholly owned subsidiaries operate in one segment with its principal office in Austin, Texas, USA.

Our actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors, including but not limited to those identified under Item 1A.

“Risk Factors”

in this report.

(together with its subsidiaries “Savara,”

the “Company,”

“we,”

“our”

or “us”) is a clinical-stage biopharmaceutical company focused on rare respiratory diseases.

Our lead program, molgramostim nebulizer solution (“molgramostim”), is an inhaled granulocyte-macrophage colony-stimulating factor in Phase 3 development for autoimmune pulmonary alveolar proteinosis (“aPAP”).

Previously, our pipeline included molgramostim for nontuberculous mycobacterial (NTM) lung infection in both non-cystic fibrosis (“CF”) and CF patients, vancomycin hydrochloride inhalation powder (“vancomycin”) for persistent methicillin-resistant Staphylococcus aureus (“MRSA”) lung infection in people living with CF and inhaled liposomal ciprofloxacin (“Apulmiq”) for non-CF bronchiectasis.

Savara, together with its wholly-owned subsidiaries, which includes Aravas Inc., Savara ApS, Drugrecure A/S, and Savara Australia Pty.

Limited, operate in one segment with its principal office in Austin, Texas.

Since inception, we have devoted substantially all of our efforts and resources to identifying and developing our product candidates, recruiting personnel, and raising capital.

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We have chosen to operate by outsourcing our manufacturing and most of our clinical operations.

We expect to incur significant additional expenses and continue to incur operating losses for at least the next several years as we initiate and continue the clinical development of, and seek regulatory approval for, our primary product candidate.

We expect that our operating losses will fluctuate significantly from quarter to quarter and year to year due to timing of clinical development programs and efforts to achieve regulatory approval.

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The amount and timing of our future funding requirements will depend on many factors, including the pace and results of our clinical development efforts.

Failure to raise capital as and when needed, on favorable terms or at all, would have a negative impact on our financial condition and our ability to develop our product candidates.

Failure to raise capital as and when needed, on favorable terms or at all, would have a negative impact on our financial condition and our ability to develop our product candidate.

Recent Events

Parexel Master Services Agreement

We entered into a Master Services Agreement (“MSA”) with Parexel on March 5, 2021, pursuant to which Parexel will provide contract research services related to our clinical trials.

Contemporaneously with entering the MSA, we executed a work order with Parexel, under which Parexel will provide services related to the IMPALA 2 trial.

Under that work order, we will pay Parexel service fees and pass-through expenses estimated to be approximately $31 million over the course of the IMPALA 2 clinical trial.

On December 10, 2020, we announced that our Phase 3 trial of vancomycin hydrochloride inhalation powder in people living with cystic fibrosis who have MRSA lung infection did not meet the primary endpoint.

Subsequently, on January 7, 2021, we issued a termination notice to GlaxoSmithKline Trading Services Limited (“GSK”) , who manufactures the drug product from bulk vancomycin powder.

On January 26, 2021, we and GSK entered a change order for termination costs associated with the closeout and winddown of vancomycin activities.

Termination costs were less than $1 million.

The continuing COVID-19 global pandemic poses significant risks to our business.

The continuing COVID-19 global pandemic poses risks to our business.

As we commence enrollment of our additional Phase 3 trial for the use of molgramostim for the treatment of aPAP, there remains a general uncertainty regarding the impact of COVID-19 on the aPAP patient population and physicians.

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These treating physicians are on the front lines in addressing this global pandemic and must now, understandably, focus their attention on COVID-19.

Additionally, w e are unable to quantify the impact this situation will have on our future financial performance, but the public health actions being undertaken to the reduce spread of the virus have created, and may continue to create , challenges and disruptions to our operations.

Accordingly, we are adhering to government restrictions and operating out of an abundance of caution for the safety of our personnel and patients, including social distancing protocols and requiring remote working for our personnel.

Additionally, management, on an on-going basis, is evaluating our liquidity position, communicating with and monitoring the actions of our service providers, manufacturers, and suppliers and reviewing our near-term financial performance as we manage Savara through the uncertainty related to COVID-19 .

Further, if an aPAP patient enrolled in the study were to contract COVID-19, they may need to discontinue their participation.

Additionally, we are unable to quantify the impact this situation will have on our future financial performance, but the public health actions being undertaken to reduce the spread of the virus have created, and may continue to create, challenges and disruptions to our operations.

Management, on an on-going basis, is evaluating our liquidity position, communicating with and monitoring the actions of our service providers, manufacturers, and suppliers and reviewing our near-term financial performance as we manage Savara through the uncertainty related to COVID-19.

As of the date of this report:

our personnel have restrictions on traveling, both in the interests of their health as well as federal, state, local, and international travel restrictions;

due to government guidance, social restrictions, and out of abundance of caution for our employees’ health, our office-based employees are primarily working remotely;

our third-party service providers, manufacturers, and suppliers are experiencing similar restrictions which could negatively impact our supply chain and progress of our development pipeline;

government restrictions enacted as a result of COVID-19 and related safety concerns have and could delay recruitment of our clinical trials.

The COVID-19 pandemic remains extremely fluid and we are continuing to re-assess the impact on our operations by monitoring the spread of COVID-19 and the actions implemented to combat the virus in various regions throughout the world.

management monitors local conditions and establishes appropriate policies to help ensure the health and safety of our employees;

our third-party service providers, manufacturers, and suppliers may experience similar circumstances which could negatively impact our supply chain and progress of our development pipeline;

COVID-19 and related safety concerns have and could delay recruitment of our clinical trials.

The COVID-19 pandemic remains extremely fluid and we are continuing to re-assess the impact on our operations by monitoring the spread of COVID-19, emerging COVID-19 variants, and the actions implemented to combat the virus in various regions throughout the world.

Where appropriate, we are making necessary operational and strategic decisions where possible, in an attempt to mitigate the negative impact of the virus on our operations.

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These measures include deferring the due dates of tax payments or other changes to their income and non-income-based tax laws.

The CARES Act, which was enacted on March 27, 2020 in the U.S., includes many measures to assist companies, including temporary changes to income and non-income-based tax laws.

Some of the key tax-related provisions of the bill include:

eliminating the 80% of taxable income limitations by allowing corporate entities to fully utilize net operating loss (“NOL”) carryforwards to offset taxable income in 2018, 2019 or 2020.

The 80% limitation is reinstated for tax years after 2020;

allowing NOLs originating in 2018, 2019 or 2020 to be carried back five years;

increasing the net interest expense deduction limit to 50% of adjusted taxable income from 30% for tax years beginning January 1, 2019 and 2020;

allowing taxpayers with alternative minimum tax credits to claim a refund in 2020 for the entire amount of the credit instead of recovering the credit through refunds over a period of years, as originally enacted by the Tax Cut and Jobs Act in 2017;

allowing companies to deduct more of their cash charitable contributions paid during calendar year 2020 by increasing the taxable income limitation from 10% to 25%.

In addition to the income tax provisions noted above, the CARES Act provides for non-income tax provisions, such as allowing payments of the employer share of Social Security payroll taxes that would otherwise be due from the date of enactment through December 31, 2020 to be paid over the following two years.

The Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act”), which was enacted on March 27, 2020 in the U.S., includes many measures to assist companies, including temporary changes to income and non-income-based tax laws.

Additionally, the CARES Act provides for non-income tax provisions, such as allowing payments of the employer share of Social Security payroll taxes that would otherwise be due from the date of enactment through December 31, 2020 to be paid over the following two years.

Other provisions will allow eligible employers subject to closure due to the COVID-19 pandemic to receive a 50% credit on qualified wages against their employment taxes each quarter with any excess credits eligible for refunds.

On August 8, 2020, former President Trump issued a COVID-19 relief executive order (“EO”) intending to help alleviate the hardships experienced by American workers as a result of the pandemic.

The EO focuses on four key areas of relief including the deferral of payroll tax obligations for certain workers.

We have assessed the provisions of the CARES Act and EO and do not believe the measures mentioned above materially impact us or are relevant to our tax reporting.

The Consolidated Appropriations Act extended and expanded the availability of the CARES Employee Retention credit through June 30, 2021.

Subsequently, the American Rescue Plan Act of 2021 (“ARP”), enacted on March 11, 2021, extended and expanded the availability of the CARES Employee Retention credit through December 31, 2021;

however, certain provisions apply only after December 31, 2020.

We have assessed the provisions of the CARES Act, EO, and ARP and do not believe the measures mentioned above materially impact us or are relevant to our tax reporting.

However, we are continuing to assess these and other provisions of the CARES Act and ARP and any potential additional federal stimulus packages with regards to their impact on our tax reporting as well as any provisions which may benefit us or our employees.

Critical Accounting Policies and Estimates

Our management’s discussion and analysis of financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the U.S.

The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities and expenses.

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Actual results may differ materially from these estimates.

We believe that the accounting policies discussed below are critical to understanding our historical and future performance, as these policies relate to the more significant areas involving management’s judgments and estimates.

Refer to Note 2.

Summary of Significant Accounting Policies in the notes to our consolidated financial statements in this Annual Report for additional discussion.

Accrued Research and Development Expenses

We record accrued expenses for estimated costs of our research and development activities conducted by external service providers, which include the conduct of clinical trials and contract formulation and manufacturing activities.

We record the estimated costs of development activities based upon the estimated amount of services provided but not yet invoiced, and include these costs in accrued liabilities in the consolidated balance sheet and within research and development expense in the consolidated statement of operations and comprehensive loss.

These costs are a significant component of our research and development expenses.

We record accrued expenses for these costs based on the estimated amount of work completed and in accordance with agreements established with these external service providers.

We estimate the amount of work completed through discussions with internal personnel and external service providers as to the progress or stage of completion of the services and the agreed-upon fee to be paid for such services.

We make significant judgments and estimates in determining the accrued balance in each reporting period.

As actual costs become known, we adjust our accrued estimates.

We record the costs associated with research, nonclinical and clinical trials, and manufacturing development as incurred.

These costs are a significant component of our research and development expenses, with a substantial portion of our on-going research and development activities conducted by third party service providers, including contract research and manufacturing organizations.

We accrue for expenses resulting from obligations under agreements with CROs, CMOs, and other outside service providers for which payment flows do not match the periods over which materials or services are provided to us.

Accruals are recorded based on estimates of services received and efforts expended pursuant to agreements established with CROs, CMOs, and other outside service providers.

These estimates are typically based on contracted amounts applied to the proportion of work performed and determined through analysis with internal personnel and external service providers as to the progress or stage of completion of the services.

We make significant judgments and estimates in determining the accrual balance in each reporting period.

In the event advance payments are made to a CRO, CMO, or outside service provider, the payments will be recorded as a prepaid asset which will be amortized or expensed as the contracted services are performed.

As actual costs become known, we adjust our prepaids and accruals.

Inputs, such as the services performed, the number of patients enrolled, or the trial duration, may vary from our estimates, resulting in adjustments to research and development expense in future periods.

Changes in these estimates that result in material changes to our accruals could materially affect our results of operations.

To date, we have not experienced any material deviations between accrued and actual research and development expenses.

Business Combinations

We account for business combinations in accordance with Accounting Standards Codification (“ASC”) Topic 805, “Business Combinations,” and as further defined by Accounting Standards Update (“ASU”) 2017-01, “Business Combinations (Topic 805),” which requires the purchase price to be measured at fair value.

We account for business combinations in accordance with Accounting Standards Codification (“ASC”) Topic 805, Business Combinations , and as further defined by Accounting Standards Update (“ASU”) 2017-01, Business Combinations (Topic 805) , which requires the purchase price to be measured at fair value.

When the purchase consideration consists entirely of shares of our common stock, we calculate the purchase price by determining the fair value, as of the acquisition date, of shares issued in connection with the closing of the acquisition and, if the transaction involves contingent consideration based on achievement of milestones or earn-out events, the probability-weighted fair value, as of the acquisition date, of shares issuable upon the occurrence of future events or conditions pursuant to the terms of the agreement governing the business combination.

If the transaction involves such contingent consideration, our calculation of the purchase price involves probability inputs that are highly judgmental due to the inherent unpredictability of drug development, particularly by development-stage companies such as ours.

We recognize estimated fair values of the tangible assets and intangible assets acquired, including in process research and development (“IPR&D”), and liabilities assumed as of the acquisition date, and we record as goodwill any amount of the fair value of the tangible and intangible assets acquired and liabilities assumed in excess of the purchase price.

We recognize estimated fair values of the tangible assets and intangible assets acquired, including IPR&D, and liabilities assumed as of the acquisition date, and we record as goodwill any amount of the purchase price of the tangible and intangible assets acquired and liabilities assumed in excess of the fair value.

Goodwill and Acquired In-Process Research and Development

Although we did not have any goodwill as of December 31, 2020, we adopted the following accounting policy.

In accordance with Accounting Standards Codification (“ASC”) Topic 350, “Intangibles – Goodwill and Other,” our goodwill and acquired in-process research and development (“IPR&D”) are determined to have indefinite lives and, therefore, are not amortized.

Instead, they are tested for impairment annually and between annual tests if we become aware of an event or a change in circumstances that would indicate the carrying value may be impaired.

In accordance with ASC Topic 350, Intangibles –

Goodwill and Other , our IPR&D and goodwill, when applicable, is determined to have indefinite lives and, therefore, is not amortized.

Instead, it is tested for impairment annually and between annual tests if we become aware of an event or a change in circumstances that would indicate the carrying value may be impaired.

For instance, based upon the ultimate scope and scale of the COVID-19 global pandemic, there may be materially negative impacts to the assumptions made with respect to our IPR&D assets that could result in an impairment of such assets.

Accounting Standards Update (“ASU”) 2017-04, “Intangibles – Goodwill and Other (Topic 350):

Simplifying the Test for Goodwill Impairment,” outlines an impairment model providing us the option to implement a one-step method for determining impairment of goodwill, thereby simplifying the subsequent measurement of goodwill by eliminating Step 2 (quantitative calculation of measuring a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount of that goodwill) from the goodwill impairment test.

With respect to the impairment testing of acquired IPR&D, ASU 2011-08, Intangibles –

Goodwill and Other (Topic 350):

Testing Goodwill for Impairment , and ASU 2012-02, Intangibles –

Goodwill and Other (Topic 350):

Testing Indefinite-Lived Intangible Assets for Impairment , provide us a two-step impairment process with the option to first assess qualitative factors to determine whether the existence of events or circumstances leads us to determine that it is more-likely-than not (that is, a likelihood of more than 50%) that our acquired IPR&D is impaired.

If we choose to first assess qualitative factors and we determine that it is more-likely-than not acquired IPR&D is not impaired, we are not required to take further action to test for impairment.

ASU 2017-04, Intangibles –

Goodwill and Other (Topic 350):

Simplifying the Test for Goodwill Impairment , outlines an impairment model providing us the option to implement a one-step method for determining impairment of goodwill, thereby simplifying the subsequent measurement of goodwill by eliminating Step 2 (quantitative calculation of measuring a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount of that goodwill) from the goodwill impairment test.

Under the amendments in this guidance, an entity should perform its annual or interim goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount.

An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value;

however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit.

Additionally, an entity should consider income tax effects from any tax-deductible goodwill on the carrying amount of the reporting unit when measuring the goodwill impairment loss, if applicable.

With respect to the impairment testing of acquired IPR&D, ASU 2011-08, “Intangibles – Goodwill and Other (Topic 350):

Testing Goodwill for Impairment,” and ASU 2012-02, “Intangibles – Goodwill and Other (Topic 350):

Testing Indefinite-Lived Intangible Assets for Impairment,” provide us a two-step impairment process with the option to first assess qualitative factors to determine whether the existence of events or circumstances leads us to determine that it is more-likely-than not (that is, a likelihood of more than 50%) that our acquired IPR&D is impaired.

If we choose to first assess qualitative factors and we determine that it is more-likely-than not acquired IPR&D is not impaired, we are not required to take further action to test for impairment .

If we perform a quantitative assessment of acquired IPR&D, we compare its carrying value to its estimated fair value to determine whether an impairment exists.

In previous years, due to a lack of Level 1 or Level 2 inputs, the Multi-Period Excess Earnings Method (“MPEEM”), which is a form of the income approach, was used to estimate the fair value of acquired IPR&D when performing a quantitative assessment.

Under the MPEEM, the fair value of an intangible asset is equal to the present value of the asset’s projected incremental after-tax cash flows (excess earnings) remaining after deducting the market rates of return on the estimated value of contributory assets (contributory charge) over its remaining useful life.

When we perform a quantitative assessment of acquired IPR&D, we compare its carrying value to its estimated fair value to determine whether an impairment exists.

Under the MPEEM, the fair value of an intangible asset is

equal to the present value of the asset’s projected incremental after-tax cash flows (excess earnings) remaining after deducting the market rates of return on the estimated value of contributory assets (contributory charge) over its remaining useful life.

We evaluate potential impairment of our acquired IPR&D annually on September 30, utilizing a qualitative approach and determining if it was more-likely-than not that the fair value was impaired.

We evaluate potential impairment of our acquired goodwill, if any, annually on June 30, performing the quantitative analysis based upon market capitalization.

While we continue to evaluate opportunities to monetize our acquired assets, we can provide no assurances that we will be able to do so.

However, we believe that our approach is a more appropriate method for assessing fair value in the context of our current business.

Our determinations as to whether, and if so, the extent to which goodwill and acquired IPR&D become impaired are highly judgmental and, in the case of applying the MPEEM approach to estimate fair value, are based on significant assumptions regarding our projected future financial condition and operating results, changes in the manner of our use of the acquired assets, development of our acquired assets or our overall business strategy, and regulatory, market, and economic environment and trends .

Share-based Compensation Expenses

We recognize the cost of stock-based awards granted to employees based on the estimated grant-date fair value of the awards.

The value of the award is recognized as expense ratably over the requisite service period.

We recognize the compensation costs for awards that vest over several years on a straight-line basis over the vesting period.

Forfeitures are recognized when they occur, which may result in the reversal of compensation costs in subsequent periods as the forfeitures arise.

We estimate the grant-date fair value of a stock option award using the Black-Scholes-Merton option pricing model (“Black-Scholes model”).

In determining the grant-date fair value of a stock option award under the Black-Scholes model, we must make a number of assumptions, including the term of the award, the volatility of the price of our common stock over the term of the award, and the risk-free interest rate.

Changes in these or other assumptions could have a material impact on the compensation expense we recognize.

If the associated research and development effort is abandoned, the related asset will be written-off, and we will record a non-cash impairment loss on our consolidated statements of operations and comprehensive loss.

For those products that reach commercialization, the IPR&D asset will be amortized over its estimated useful life.

Product Revenue

We record revenue based on a five-step model in accordance with ASC 606, “Revenue from Contracts with Customers.” To date, we have not generated any product revenue from our product candidates.

We record revenue based on a five-step model in accordance with ASC 606, Revenue from Contracts with Customers .

To date, we have not generated any product revenue from our product candidates.

Milestone Revenue

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At the end of each subsequent reporting period, we re-evaluate the probability of achievement of such milestones and any related constraint, and if necessary, adjust the estimate of the overall transaction price.

Share-based Compensation Expenses

We recognize the cost of stock-based awards granted to employees based on the estimated grant-date fair value of the awards.

The value of the award is recognized as expense ratably over the requisite service period.

We recognize the compensation costs for awards that vest over several years on a straight-line basis over the vesting period.

Forfeitures are recognized when they occur, which may result in the reversal of compensation costs in subsequent periods as the forfeitures arise.

In addition, we account for any modifications to stock-based awards in accordance with ASC Topic 718, Compensation –

Stock Compensation .

We estimate the grant-date fair value of a stock option award using the Black-Scholes-Merton option pricing model (“Black-Scholes model”).

Changes in these or other assumptions could have a material impact on the compensation expense we recognize.

We use the asset and liability method of accounting for income taxes.

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contract manufacturing expenses, primarily for the production of clinical supplies;

internal costs that are associated with activities performed by our research and development organization and generally benefit multiple programs.

Where appropriate, these costs are allocated by product candidate.

Unallocated internal research and development costs consist primarily of:

internal costs that are associated with activities performed by our research and development organization, which primarily consists of:

personnel costs, which include salaries, benefits and stock-based compensation expense;

allocated facilities and other expenses, which include expenses for maintenance of facilities and depreciation expense;

facilities and other expenses, which include expenses for maintenance of facilities and depreciation expense;

regulatory expenses and technology license fees related to development activities.

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Product candidates:

Other, including Apulmiq

Total research and development expenses

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General and Administrative Expenses

General and administrative (“G&A”) expenses consist primarily of salaries, benefits, and related costs for personnel in executive, finance and accounting, and legal;

General and administrative (“G&A”) expenses consist primarily of salaries, benefits, and related costs for personnel in executive, finance and accounting, legal, and investor relations;

as well as professional and consulting fees for accounting, legal, investor relations, business development, human resources, and information technology services.

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Other income (expense) also includes net unrealized and realized gains and losses from foreign currency transactions, foreign exchange derivatives not designated as hedging, refundable tax credits generated by some of our foreign subsidiaries, and securities subject to fair value accounting as well as any other non-operating gains and losses.

Results of Operations — Comparison of Years Ended December 31 , 20 20 and 201 9

Results of Operations —

Comparison of Years Ended December 31, 2021 and 2020

Year ended December 31,

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General and administrative

Impairment of goodwill

Depreciation and amortization

Total operating expenses

Loss from operations

Other income (expense), net

Other expense, net

Milestone Revenue

We recognized $0.3 million in revenue during the year ended December 31, 2020 related to the prior achievement and receipt of a milestone payment in October 2018 pursuant to a license agreement.

The license agreement was terminated during the third quarter of 2020 causing all performance obligations to have been satisfied, which resulted in the recognition of revenue.

There was no such revenue recorded during the year ended December 31, 2021 .

Research and Development

Research and development expenses decreased $6.0 million, or 17.3%, to $29.0 million for the year ended December 31, 2021 from $35.0 million for the year ended December 31, 2020.

The decrease was primarily due to the wind down and conclusion of our non-aPAP trials, primarily vancomycin.

During 2019 and part of 2020, our research and development costs included expenses associated with the development of molgramostim for the treatment of NTM and NTM in patients with CF, as well as the enrollment and other Phase 3 trial activities of our vancomycin program.

These trials were concluded or terminated as we focus on the development of molgramostim for the treatment of aPAP.

The decrease was partially offset by costs incurred related to Apulmiq.

The decrease is largely attributable to $5.4 million of acquisition costs for the acquisition of an inhaled liposomal ciprofloxacin product candidate (the “Licensed Product”) in March 2020 and a $6.9 million decrease in CMC and clinical operations activities associated with the wind down of our vancomycin study.

This is partially offset by a $6.4 million increase in costs associated with molgramostim for the treatment of aPAP related to the startup and progression of the IMPALA-2 trial.

General and Administrative

General and administrative expenses increased $1.2 million, or 9.0%, to $14.3 million for the year ended December 31, 2020 from $13.1 million for the year ended December 31, 2019.

The increase was primarily due to increased stock-based compensation expense, insurance expense and costs related to the resignation of our former chief executive officer and former chief business officer.

These increases were partially offset by a decrease in commercial costs related to our molgramostim product candidate.

Impairment of IPR&D and Goodwill

During the year ended December 31, 2019, we recognized $26.9 million in goodwill impairment charges following the results of our IMPALA Phase 3 trial of molgramostim for the treatment of aPAP .

Other Income (Expense), Net

Other income (expense), net, decreased from $0.9 million income to $0.3 million expense.

The decrease was primarily due to an increase in interest expense, net, of $1.4 million.

The increase in interest expense, net, was primarily related to moving our available-for-sale securities to money market accounts during 2020, resulting in a decrease in investment income due to lower interest rates.

General and administrative expenses decreased $1.9 million, or 13.4%, to $12.4 million for the year ended December 31, 2021 from $14.3 million for the year ended December 31, 2020.

The decrease is primarily due to the recognition of a one-time non-recurring charge of $0.8 million for non-cash stock-based compensation and approximately $1.5 million of paid and accrued severance payments to former members of executive management during the year ended December 31, 2020.

Other Expense, Net

Other expense, net, increased $1.2 million to $1.5 million for the year ended December 31, 2021 from $0.3 million for the year ended December 31, 2020.

The change is primarily related to a reduction in investment income of approximately $0.8 million, which is included in the Interest expense, net line item on the consolidated statement of operations in this Annual Report.

This reduction is primarily due to lower interest rates.

Additionally, Foreign currency exchange (loss) gain decreased to a loss by $0.3 million due to a change in foreign currency exchange rates.

Liquidity and Capital Resources

Sources of Liquidity

Since inception through December 31, 2020, our operations have been financed primarily by net cash proceeds of approximately $268.2 million, primarily from public offerings of common stock, private placements, and debt financings.

As of December 31, 2021, we had $34.0 million in cash, $127.2 million in short-term investments, and an accumulated deficit of $300.5 million.

We expect that our research and development expenses will remain significant, and, as a result, we anticipate that we will continue to incur losses in the foreseeable future.

Therefore, we will need to raise additional capital to fund our operations, which may be through the issuance of additional equity and potentially through borrowings.

Since inception through December 31, 2021, our operations have been financed primarily by net cash proceeds of approximately $392.9 million, primarily from public offerings of common stock, private placements, and debt financings.

We have used and intend to use the net proceeds from these offerings for working capital and general corporate purposes, which include, but are not limited to, the funding of clinical development of and pursuing regulatory approval for our product candidate and general and administrative expenses.

Given the uncertainty created by the COVID-19 global pandemic, we will continue to monitor our liquidity and capital requirements.

Debt Facility

On April 28, 2017, we entered into a loan and security agreement with Silicon Valley Bank, as amended on October 31, 2017 and December 4, 2018 (the “Loan Agreement”).

On January 31, 2020, we executed a third amendment to the Loan Agreement (the “Third Amendment”), which provides for a $25 million term debt facility.

The Third Amendment extends the interest only period of the loan repayment through June 30, 2022, with payments thereafter in equal monthly installments of principal plus interest over 18 months.

However, if by March 31, 2021, we do not have an ongoing Phase 3 or Phase 4 clinical trial evaluating molgramostim for the treatment of aPAP in which the first patient has been dosed, the interest-only period will end and principal plus interest will be due in

equal monthly installments over 24 months, beginning on April 1, 2021 .

In February 2021, Silicon Valley Bank agreed to extend the requirement for the date of the first patient dose d in our Phase 3 IMPALA 2 trial to the end of the second quarter of 2021.

Silicon Valley Bank has been granted a perfected first priority lien in all of our assets with a negative pledge on our intellectual property.

The Loan Agreement, as amended by the Third Amendment, contains customary affirmative and negative covenants, including among others, covenants limiting our ability and our subsidiaries’ ability to dispose of assets, permit a change in control, merge or consolidate, make acquisitions, incur indebtedness, grant liens, make investments, make certain restricted payments, and enter into transactions with affiliates, in each case subject to certain exceptions.

In addition, the Third Amendment contains an affirmative covenant requiring us to deliver evidence by June 30, 2021 of the receipt of gross cash proceeds of at least $25 million from the exercise of currently outstanding warrants or the issuance of other equity securities.

Following the effective date of the Third Amendment, the Company was required to pay a portion of the end of period charge equal to $0.5 million under the Loan Agreement to Silicon Valley Bank.

The loans bear interest at the greater of (i) the prime rate reported in The Wall Street Journal, plus a spread of 3.0% or (ii) 7.75%.

The Loan Agreement, as amended by the Third Amendment will also require a prepayment fee (2.0% of funded amounts in months 13-24, and 1.0% thereafter), and an end of term charge equal to 6.0% of the amount of principal borrowed.

In connection with the execution of the Third Amendment, we entered into amendments to each of the outstanding warrants previously issued to Silicon Valley Bank and its affiliate, totaling 77,793 shares, to amend the exercise price to be $2.87 per share.

That amendment results in a minimal incremental increase to the fair value of these warrants, determined in accordance with the Black-Scholes-Merton option pricing model and ASC 718-20-55, which has been recognized as interest expense.

The capital is being utilized to fund our ongoing development programs and for general corporate purposes.

As discussed in Note 7.

Debt Facility in the notes to the consolidated financial statements included in this Annual Report, we entered into a loan and security agreement with Silicon Valley Bank during the year ended December 31, 2017, which was amended a fourth time in March 2021, under which we have drawn a total of $25 million.

Common Stock Sales Agreement

On April 28, 2017, we entered into a Common Stock Sales Agreement with H.C.

Wainwright & Co., LLC (“Wainwright”), as sales agent, which was amended by Amendment No.

1 to the Common Stock Sales Agreement (the “Amendment”) on June 29, 2018 (the “Sales Agreement”), pursuant to which we may offer and sell, from time to time, through Wainwright, shares of our common stock, par value $0.001 per share (the “Shares”), having an aggregate offering price of not more than $60.0 million, in addition to the $2.3 million in shares sold prior to the Amendment.

The Amendment was effective on July 13, 2018, at the time our Registration Statement on Form S-3, dated June 29, 2018, (the “New Registration Statement”) was declared effective by the SEC.

Wainwright Sales Agreement

On April 28, 2017, the Company entered into a Common Stock Sales Agreement with H.C.

Wainwright & Co., LLC (“Wainwright”), as sales agent, which was amended by Amendment No.

1 to the Common Stock Sales Agreement on June 29, 2018 (the “Wainwright Sales Agreement”), pursuant to which the Company may offer and sell, from time to time, through Wainwright, shares of Savara’s common stock, par value $0.001 per share, having an aggregate offering price of not more than $60 million, in addition to the $2.3 million in shares sold prior to the Amendment.

On July 2, 2021, the Company delivered written notice to Wainwright that it was terminating the Wainwright Sales Agreement effective July 12, 2021.

Evercore Sales Agreement

On July 6, 2021, the Company entered into a Common Stock Sales Agreement with Evercore Group L.L.C., (“Evercore”), as sales agent (the “Sales Agreement”), pursuant to which the Company may offer and sell, from time to time, through Evercore, shares of Savara’s common stock, par value $0.001 per share (the “Shares”), having an aggregate offering price of not more than $60 million.

The Agreement was effective on July 16, 2021 (“New Registration Statement”), the date the Company’s shelf registration agreement on Form S-3, as filed with the SEC on July 6, 2021, was declared effective by the SEC.

The Shares will be offered and sold pursuant to the New Registration Statement.

Subject to the terms and conditions of the Sales Agreement, Wainwright will use its commercially reasonable efforts to sell the Shares from time to time, based upon our instructions.

We have provided Wainwright with customary indemnification rights, and Wainwright will be entitled to a commission at a fixed commission rate equal to 3.0% of the gross proceeds per Share sold.

Sales of the Shares, if any, under the Sales Agreement may be made in transactions that are deemed to be “at the market offerings” as defined in Rule 415 under the Securities Act of 1933, as amended.

We have no obligation to sell any of the Shares and may at any time suspend sales under the Sales Agreement or terminate the Sales Agreement .

During the years ended December 31, 2020 and 2019, we sold 942,825 shares and 4,769,726 shares of common stock under the Sales Agreement for net proceeds of approximately $2.3 million and $29.6 million, respectively.

Subject to the terms and conditions of the Sales Agreement, Evercore will use commercially reasonable efforts to sell the Shares from time to time, based upon the Company’s instructions.

The Company has provided Evercore with customary indemnification rights, and Evercore will be entitled to a commission at a fixed commission rate equal to 3% of the gross proceeds per Share sold.

Sales of the Shares, if any, under the Sales Agreement may be made in transactions that are deemed to be “at the market offerings”

as defined in Rule 415 under the Securities Act of 1933, as amended.

The Company has no obligation to sell any of the Shares and may at any time suspend sales under the Sales Agreement or terminate the Sales Agreement.

During the year ended December 31, 2021 , we did not sell any shares of common stock under either the Wainwright Sales Agreement or the Evercore Sales Agreement.

During the year ended December 31, 2020, we sold 942,825 shares of common stock under the Wainwright Sales Agreement for net proceeds of approximately $2.3 million.

Recent Public Offering

On July 30, 2018, we completed an underwritten public offering consisting of 4,250,000 shares of our common stock.

The net proceeds from the offering, after deducting the underwriting discounts and commissions and offering expenses, were approximately $45.8 million.

The July 2018 public offering was executed under the New Registration Statement.

Private Placement

On December 24, 2019, we completed a private placement in a public entity (the “Private Placement” or “PIPE”) under a Securities Purchase Agreement (the “Purchase Agreement”) with certain institutional and accredited investors (the “Investors”), pursuant to which we issued and sold to the Investors 9,569,430 shares of our common stock and pre-funded warrants (“Pre-Funded PIPE Warrants”) to purchase an aggregate of 5,780,537 shares of our common stock.

The gross proceeds before deducting placement fees and offering expenses were approximately $26.8 million.

We also issued accompanying warrants (the “Milestone Warrants”) to purchase an aggregate of up to 32,577,209 additional shares of our common stock and may receive up to approximately $48.2 million from the exercise of the Milestone Warrants prior to their expiration, totaling potential aggregate gross proceeds of up to approximately $75.0 million from the PIPE before deducting placement agent fees and estimated offering costs.

The Milestone Warrants are exercisable at any time prior to the earlier of thirty days following the achievement of a defined clinical milestone or two years after the closing date of the Private Placement.

The Pre-Funded PIPE Warrants are exercisable at any time after their original issuance and will not expire.

On March 11, 2021, we completed a public issuance of our common stock and pre-funded warrants for gross proceeds of approximately $130 million and net proceeds, after deducting underwriting discounts, commissions and offering expenses, of approximately $122.2 million as discussed in Note 10.

Stockholders’

Equity in the notes to the consolidated financial statements included in this Annual Report.

Since 2017, we have completed four public offerings with combined net proceeds, after deducting the underwriting discounts and commissions and offering expenses, of approximately $257.6 million.

The following table summarizes our cash flows for the periods indicated:

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Cash used in operating activities

Cash provided by investing activities

Cash (used in) provided by investing activities

Cash provided by financing activities

Effect of exchange rate changes

Net increase (decrease) in cash

Net change in cash

Cash flows from operating activities

Cash used in operating activities for the year ended December 31, 2021 was $40.1 million, consisting of a net loss of $43.0 million, a $1.8 million decrease in Accounts payable and Accrued expenses and other current liabilities mostly relating to the wind down or completion of our non-aPAP trials during 2020, and a $1.0 million increase in Prepaid and

other current assets associated with prepaid research and development costs for our IMPALA-2 trial.

This was partially offset by approximately $5.8 million of non-cash charges (comprised primarily of depreciation and amortization including right-of-use assets, amortization on premium to short-term investments, amortization of debt issuance costs and stock-based compensation).

Cash used in operating activities for the year ended December 31, 2020 was $39.8 million, consisting of a net loss of $49.6 million, which was partially offset by (1) non-cash, share-based compensation expense of $5.1 million and (2) other non-cash charges related to amortization and depreciation of $0.7 million.

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The cash paid for the acquisition is reflected in cash flows from investing activities for the year ended December 31, 2020.

Cash used in operating activities for the year ended December 31, 2019 was $45.1 million, consisting of a net loss of $78.2 million, which was partially offset by non-cash charges of $32.2 million, mainly comprised of impairment of goodwill, depreciation, non-cash interest, fair value changes, accretion on discount to short-term investments, amortization of debt issuance costs, and stock-based compensation, and further offset by a net decrease in assets and liabilities of $0.8 million.

The change in our net operating assets and liabilities was primarily due to an increase in accrued liabilities mostly related to research and development costs for both vancomycin and molgramostim.

Cash flows from investing activities

Cash provided by investing activities for the years ended December 31, 2020 and 2019 was primarily the result of net sale and maturities of short-term investments.

Cash used in or provided by investing activities for the years ended December 31, 2021 and 2020 was primarily the result of net sale and maturities of short-term investments.

In addition, we paid $3.2 million in the first quarter of 2020 related to the acquisition of Apulmiq.

Cash flows from financing activities

Cash provided by financing activities for the year ended December 31, 2020 was primarily related to net proceeds of $2.3 million related to the sales of our common stock through “at the market offerings” under the Sales Agreement and $1.8 million of net proceeds related to the exercise of certain Milestone Warrants issued in the Private Placement.

Cash provided by financing activities for the year ended December 31, 2021 was $120.8 million, which was primarily related to $122.2 million in net proceeds from the public issuance of common stock and pre-funded warrants and $2.5 million in net proceeds from the exercise of warrants.

This was partially offset by the payment of $3.9 million to repurchase outstanding warrants, as discussed in Note 10.

Stockholders’

Equity in the notes to the consolidated financial statements included in this Annual Report.

Cash provided by financing activities for the year ended December 31, 2020 was $3.7 million, which was primarily related to net proceeds of $2.3 million related to the sales of our common stock through “at the market offerings”

under the Sales Agreement and $1.8 million of net proceeds related to the exercise of certain milestone warrants issued in a private placement offering of our common stock in December 2019.

These proceeds were partially offset by the payment of $0.5 million related to the end of period charge following the Third Amendment of our debt facility with Silicon Valley Bank in January 2020.

Cash provided by financing activities for the year ended December 31, 2019 was primarily related to net proceeds of $25.2 million from the Private Placement and $29.6 million in net proceeds from the “at the market offering” under the Sales Agreement.

Future Funding Requirements

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We do not know when, or if, we will generate any revenue from product sales.

We do not expect to generate any revenue from product sales unless and until we obtain regulatory approval for and commercialize any of our current or future product candidates.

At the same time, we expect our expenses to remain significant in connection with our ongoing development and manufacturing activities, particularly as we continue the research, development, manufacture and clinical trials of, and seeking of regulatory approval for, our product candidate.

We do not expect to generate any revenue from product sales unless and until we obtain regulatory approval for and commercialize our product candidate.

At the same time, we expect our expenses to increase in connection with our ongoing development and manufacturing activities, particularly as we continue the research, development, manufacture, and clinical trials of, and seeking regulatory approval for, our product candidate.

In addition, subject to obtaining regulatory approval of our product candidate, we anticipate we may need additional funding in connection with our continuing operations.

As of December 31, 2021, we had cash, cash equivalents, and short-term investments of $161.2 million.

We will continue to require substantial additional capital to continue our clinical development and potential commercialization activities.

Accordingly, we will need to raise substantial additional capital to continue to fund our operations.

Although we have sufficient capital to fund our planned activities, including those discussed in Note 11.

Commitments - Manufacturing and Other of the consolidated financial statements in this Annual Report, we may need to raise additional capital to further fund the development of, and seek regulatory approvals for, our product candidate and to begin commercialization of any approved product.

The amount and timing of our future funding requirements will depend on many factors, including the pace and results of our clinical development efforts.

Failure to raise capital as and when needed, on favorable terms or at all, would have a negative impact on our financial condition and our ability to develop our product candidate.

Until we can generate a sufficient amount of product revenue to finance our cash requirements, we expect to finance our future cash needs primarily through the issuance of additional equity and potentially through borrowings, grants, and strategic alliances with partner companies.

To the extent that we raise additional capital through the issuance of additional equity or convertible debt securities, the ownership interest of our stockholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of existing stockholders.

Debt financing, if available, may involve agreements that include

covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures , or declaring dividends.

If we raise additional funds through marketing and distribution arrangements or other collaborations, strategic alliances or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates or grant licenses on terms that may not be favorable to us.

If we are unable to raise additional funds through equity or debt financings when needed, we may be required to delay, limit, reduce , or terminate our product development or commercialization efforts or grant rights to develop and market our product candidates to third parties that we would otherwise prefer to develop and market ourselves .

Although we are well capitalized, until we can generate a sufficient amount of product revenue to finance our cash requirements, we may finance our future cash needs primarily through the issuance of additional equity securities and potentially through borrowings, grants, and strategic alliances with partner companies.

If we are unable to raise additional funds through equity or debt financings when needed, we may be required to delay, limit, reduce, or terminate our product development or commercialization efforts or grant rights to develop and market product candidate to third parties that we would otherwise prefer to develop and market ourselves.

Manufacturing and Other Commitments and Contingencies

We are subject to various manufacturing royalties and payments and other commitments related to molgramostim.

For a summary of the contingent milestone payments and commitments, refer to Note 2, “Summary of Significant Accounting Policies - Manufacturing and Other Commitments and Contingencies,” of the consolidated financial statements in this report.

For a summary of the contingent milestone payments and commitments, refer to Note 11.

Commitments - Manufacturing and Other , of the consolidated financial statements in this Annual Report.

Other Contracts

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Recent Accounting Pronouncements

See Note 2, “Summary of Significant Accounting Policies - Recent Accounting Pronouncements,” of the consolidated financial statements in this report for a discussion of recent accounting pronouncements and their effect, if any, on us.

Quantitative and Qualitative Disclosures About Market Risk.

Summary of Significant Accounting Policies - Recent Accounting Pronouncements , of the consolidated financial statements in this Annual Report milestone for a discussion of recent accounting pronouncements and their effect, if any, on us.

Quantitative and Qualitati ve Disclosures About Market Risk.

We have market risk exposure related to our cash, cash equivalents and short-term investment securities.

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Additionally, our investment securities are fixed income instruments denominated and payable in U.S.

dollars and have short-term maturities, typically less than twelve months, and typically carry credit ratings of “A” at a minimum by two of three nationally recognized statistical rating organizations, specifically Moody’s, Standard & Poor’s or Fitch.

dollars and have short-term maturities, typically less than twelve months, and typically carry credit ratings of “A”

at a minimum by two of three nationally recognized statistical rating organizations, specifically Moody’s, Standard & Poor’s or Fitch.

As such, we do not believe that our cash, cash equivalents, and short-term investment securities have significant risk of default or illiquidity.

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We do not believe that inflation has had a material effect on our results of operations during the periods presented.

Financial Statements and Supplementary Data.

Financial Statement s and Supplementary Data.

The consolidated financial statements and supplementary financial information required by this item are filed with this report as described under Item 15.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

Our management has evaluated, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, the effectiveness of our disclosure controls and procedures as of December 31, 2020, pursuant to and as required by Rule 13a-15(b) under the Exchange Act.

Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of December 31, 2020, our disclosure controls and procedures, as defined by Rule 13a-15(e) under the Exchange Act, were effective and designed to ensure that (i) information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC's rules and forms and (ii) information is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosures.

Management's Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f).

Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we assessed the effectiveness of our internal control over financial reporting based on the framework in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”).

As a result of that assessment, management concluded that our internal control over financial reporting was effective as of December 31, 2020 based on criteria in Internal Control - Integrated Framework (2013) issued by the COSO.

As a smaller reporting company, we were not required to obtain an audit on the effectiveness of our internal control over financial reporting as of December 31, 2020.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting that occurred during Savara’s quarter ended December 31, 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Other Information.

Not applicable.

Certain information required by Part III of this report is omitted from this report pursuant to General Instruction G(3) of Form 10-K because we will file a definitive proxy statement pursuant to Regulation 14A for our 2021 annual meeting of stockholders (the “Proxy Statement”) not later than 120 days after the end of the fiscal year covered by this report, and the information included in the Proxy Statement that is required by Part III of this report is incorporated herein by reference.

Directors, Executive Officers, and Corporate Governance.

Code of Ethics

We have adopted a code of ethics that applies to our principal executive officer, principal financial officer, principal accounting officer, or persons performing similar functions, as well as all of our other officers, directors, and employees.

This code of ethics is a part of our code of business conduct and ethics, and is available on our corporate website at www.savarapharma.com.

We intend to disclose future amendments to, or waivers of, certain provisions of our code of ethics that apply to our principal executive officer, principal financial officer, principal accounting officer, or persons performing similar functions on our corporate website within four business days following such amendment or waiver.

The other information required by this item will be set forth in the Proxy Statement and is incorporated into this report by reference.

Executive Compensation.

The information required by this item will be set forth in the Proxy Statement and is incorporated into this report by reference.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

The information required by this item will be set forth in the Proxy Statement and is incorporated into this report by reference.

Certain Relationships and Related Transactions, and Director Independence.

The information required by this item will be set forth in the Proxy Statement and is incorporated into this report by reference.

Principal Accounting Fees and Services.

The information required by this item will be set forth in the Proxy Statement and is incorporated into this report by reference.

Exhibits, Financial Statement Schedules.

(a) Documents Filed .

The following documents are filed as part of this report:

(1) Financial Statements.

The following report of RSM US LLP and financial statements:

Report of Independent Registered Public Accounting Firm

Consolidated Balance Sheets as of December 31, 2020 and 2019

Consolidated Statements of Operations and Comprehensive Loss for the years ended December 31, 2020 and 2019

Consolidated Statements of Changes in Stockholders’ Equity for the years ended December 31, 2020 and 2019

Consolidated Statements of Cash Flows for the years ended December 31, 2020 and 2019

Notes to Consolidated Financial Statements

(2) Financial Statement Schedules.

See subsection (c) below.

(3) Exhibits.

See subsection (b) below.

(b) Exhibits.

The exhibits filed or furnished with this report are set forth on the Exhibit Index immediately following the signature page of this report, which Exhibit Index is incorporated herein by reference.

All schedules are omitted because they are not applicable or the required information is shown in the financial statements or notes thereto.

Form 10-K Summary.

Not applicable.

Exhibit Index

Agreement and Plan of Merger and Reorganization, dated January 6, 2017, by and among the Registrant, Aravas Inc.

(formerly Savara Inc.) and Victoria Merger Corp.

(Incorporated by reference to Exhibit 2.1 to the Registrant’s Current Report on Form 8-K filed on January 9, 2017.)

Business Transfer Agreement, dated May 13, 2016, between Aravas Inc.

(formerly Savara Inc.) and Serendex Pharmaceuticals A/S (Incorporated by reference to Exhibit 2.6 to the Registrant’s Registration Statement on Form S-4 filed on February 10, 2017.)

Amendment dated May 27, 2019 to the Business Transfer Agreement Between Savara Inc.

and Serendex Pharmaceuticals A/S, dated May 13, 2016, between Savara Inc.

and Serendex Pharmaceuticals A/S.

(Incorporated by reference to Exhibit 10.1 of the Registrant’s Quarterly Report on Form 10-Q filed on August 8, 2019.)

Amended and Restated Certificate of Incorporation, as amended, of the Registrant (Incorporated by reference to Exhibit 3.1 to the Registrant’s Registration Statement on Form S-3 filed on June 29, 2018.)

Composite Amended and Restated Bylaws, as amended, of the Registrant (Incorporated by reference to Exhibit 3.2 to the Registrant’s Annual Report on Form 10-K filed on March 26, 2014.)

Form of common stock certificate of the Registrant (Incorporated by reference to Exhibit 4.1 to the Registrant’s Annual Report on Form 10-K filed on March 14, 2018.)

Warrant to Purchase Shares of Common Stock of the Registrant issued to Life Science Loans II, LLC on April 28, 2017 (Incorporated by reference to Exhibit 4.3 to the Registrant’s Quarterly Report on Form 10-Q filed on May 5, 2017.)

Warrant to Purchase Shares of Common Stock of the Registrant issued to Silicon Valley Bank on April 28, 2017 (Incorporated by reference to Exhibit 4.2 to the Registrant’s Quarterly Report on Form 10-Q filed on May 5, 2017.)

Amendment to Warrant to Purchase Shares of Common Stock of the Registrant issued to Life Science Loans II, LLC on June 26, 2017.

(Incorporated by reference to Exhibit 4.1 to the Registrant’s Quarterly Report on Form 10-Q filed on August 9, 2017.)

Amendment to Warrant to Purchase Shares of Common Stock of the Registrant issued to SVB Financial Group on June 26, 2017.

(Incorporated by reference to Exhibit 4.2 to the Registrant’s Quarterly Report on Form 10-Q filed on August 9, 2017.)

Warrant to Purchase Shares of Common Stock of the Registrant issued to Life Science Loans II, LLC on June 26, 2017.

(Incorporated by reference to Exhibit 4.3 to the Registrant’s Quarterly Report on Form 10-Q filed on August 9, 2017.)

Warrant to Purchase Shares of Common Stock of the Registrant issued to Silicon Valley Bank on June 26, 2017.

(Incorporated by reference to Exhibit 4.4 to the Registrant’s Quarterly Report on Form 10-Q filed on August 9, 2017.)

Form of Pre-Funded Warrant (Incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K filed on October 25, 2017.)

Warrant to Purchase Shares of Common Stock of the Registrant issued to Life Science Loans II, LLC on December 4, 2018.

(Incorporated by reference to Exhibit 4.19 to the Registrant’s Annual Report on Form 10-K filed on March 13, 2019.)

Warrant to Purchase Shares of Common Stock of the Registrant issued to Silicon Valley Bank on December 4, 2018.

(Incorporated by reference to Exhibit 4.20 to the Registrant’s Annual Report on Form 10-K filed on March 13, 2019.)

Form of Common Stock Purchase Warrant (Incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K filed on December 20, 2019.)

Form of Pre-Funded Common Stock Purchase Warrant (Incorporated by reference to Exhibit 4.2 to the Registrant’s Current Report on Form 8-K filed on December 20, 2019.)

Second Amendment to Warrant to Purchase Common Stock dated January 31, 2020, to Warrant to Purchase Common Stock of the Registrant issued to Life Science Loans II, LLC on April 28, 2017 (as amended by that certain Amendment to Warrant to Purchase Common Stock dated as of June 26, 2017) (Incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K filed on February 3, 2020.)

Second Amendment to Warrant to Purchase Common Stock dated January 31, 2020, to Warrant to Purchase Common Stock of the Registrant issued to Silicon Valley Bank on April 28, 2017 (as amended by that certain Amendment to Warrant to Purchase Common Stock dated as of June 26, 2017) (Incorporated by reference to Exhibit 4.2 to the Registrant’s Current Report on Form 8-K filed on February 3, 2020.)

Amendment to Warrant to Purchase Common Stock of the Registrant dated January 31, 2020, to Warrant to Purchase Common Stock of the Registrant issued to Life Science Loans II, LLC on June 26, 2017 (Incorporated by reference to Exhibit 4.3 to the Registrant’s Current Report on Form 8-K filed on February 3, 2020.)

Amendment to Warrant to Purchase Common Stock of the Registrant dated January 31, 2020, to Warrant to Purchase Common Stock of the Registrant issued to Silicon Valley Bank on June 26, 2017 (Incorporated by reference to Exhibit 4.4 to the Registrant’s Current Report on Form 8-K filed on February 3, 2020.)

Amendment to Warrant to Purchase Common Stock of the Registrant dated January 31, 2020, to Warrant to Purchase Common Stock of the Registrant issued to Life Science Loans II, LLC on December 4, 2018 (Incorporated by reference to Exhibit 4.5 to the Registrant’s Current Report on Form 8-K filed on February 3, 2020.)

Amendment to Warrant to Purchase Common Stock of the Registrant dated January 31, 2020, to Warrant to Purchase Common Stock of the Registrant issued to Silicon Valley Bank on December 4, 2018 (Incorporated by reference to Exhibit 4.6 to the Registrant’s Current Report on Form 8-K filed on February 3, 2020.)

Description of Registered Securities (Incorporated by reference to Exhibit 4.25 to the Registrant’s Annual Report on Form 10-K filed on March 12, 2020).

Common Stock Sales Agreement, dated April 28, 2017, between Savara Inc.

Wainwright & Co., LLC (Incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed on April 28, 2017.)

Loan and Security Agreement, dated April 28, 2017, among Savara Inc., Aravas Inc.

and Silicon Valley Bank (Incorporated by reference to Exhibit 10.3 to the Registrant’s Quarterly Report on Form 10-Q filed on May 5, 2017.)

First Amendment dated October 31, 2017, to Loan and Security Agreement, dated April 28, 2017, among Savara Inc., Aravas Inc.

and Silicon Valley Bank.

(Incorporated by reference to Exhibit 10.4 to the Registrant’s Quarterly Report on Form 10-Q filed on November 8, 2017.)

Amended and Restated 2015 Omnibus Incentive Plan, as amended (Incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K filed on June 1, 2020.)

Form of Non-Statutory Stock Option Grant Agreement—Director (for grants to non-employee directors) under the 2015 Omnibus Incentive Plan (Incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed on June 16, 2015.)

Form of Incentive Stock Option Grant Agreement – Exempt Employees under the 2015 Omnibus Incentive Plan (Incorporated by reference to Exhibit 10.3 to the Registrant’s Current Report on Form 8-K filed on June 16, 2015.)

Form of Incentive Stock Option Grant Agreement – Non-Exempt Employees under the 2015 Omnibus Incentive Plan (Incorporated by reference to Exhibit 10.4 to the Registrant’s Current Report on Form 8-K filed on June 16, 2015.)

Form of Non-Statutory Stock Option Grant Agreement – General under the 2015 Omnibus Incentive Plan (Incorporated by reference to Exhibit 10.8 to the Registrant’s Annual Report on Form 10-K filed on March 14, 2018.)

Form of Incentive Stock Option Grant Agreement – Exempt Employees, in accordance with Danish employment law, under the 2015 Omnibus Incentive Plan.

Form of Grant of Restricted Stock Units under the 2015 Omnibus Incentive Plan.

(Incorporated by reference to Exhibit 10.3 to the Registrant’s Quarterly Report on Form 10-Q filed on November 8, 2017.)

(formerly Savara Inc.) Stock Option Plan (Incorporated by reference to Exhibit 10.53 to the Registrant’s Registration Statement on Form S-4 filed on February 10, 2017.)

(formerly Savara Inc.) Form of Incentive Stock Option Agreement (Incorporated by reference to Exhibit 10.54 to the Registrant’s Registration Statement on Form S-4 filed on February 10, 2017.)

Executive Employment Agreement, dated March 9, 2017, between Aravas Inc.

(formerly Savara Inc.) and David Lowrance (Incorporated by reference to Exhibit 10.58 to Amendment No.

1 to the Registrant’s Registration Statement on Form S-4 filed on March 13, 2017.)

Form of Director and Officer Indemnification Agreement (Incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed on October 23, 2006.)

Commercial Supply Agreement dated April 24, 2015 between PARI Pharma GmbH and Serendex Pharmaceuticals A/S (Incorporated by reference to Exhibit 10.62 to the Registrant’s Registration Statement on Form S-4 filed on February 10, 2017.)

Research Collaboration and License Agreement dated November 7, 2014 between PARI Pharma GmbH and Serendex Pharmaceuticals A/S (Incorporated by reference to Exhibit 10.63 to the Registrant’s Registration Statement on Form S-4 filed on February 10, 2017.)

Sublease Agreement between Savara Inc.

and Clubessential, LLC dated November 28, 2017 (Incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on December 4, 2017.)

Settlement Agreement between Savara Inc.

and Serenova A/S dated September 1, 2017 (Incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q filed on November 8, 2017.)

Amendment No.

1 to Common Stock Sales Agreement, dated June 29, 2018, between Savara Inc.

Wainwright & Co., LLC.

(Incorporated by reference to Exhibit 10.2 of the Registrant’s Current Report on Form 8-K filed on June 29, 2018.)

Amendment No.

1, effective May 23, 2018, to the Research Collaboration and License Agreement between Savara Inc.

(as successor in interest to Serendex Pharmaceuticals A/S) and PARI Pharma GmbH dated November 7, 2014 (Incorporated by reference to Exhibit 10.3 of the Registrant’s Quarterly Report on Form 10-Q filed on August 9, 2018.)

Amendment to Executive Employment Agreement, dated as of August 3, 2018, by and among Savara Inc.

and Dave Lowrance (Incorporated by reference to Exhibit 10.5 of the Registrant’s Quarterly Report on Form 10-Q filed on August 9, 2018.)

Second Amendment, dated December 4, 2018, to Loan and Security Agreement, dated April 28, 2017, as amended on October 31, 2017, among Savara Inc., Aravas Inc.

and Silicon Valley Bank.

(Incorporated by reference to Exhibit 10.31 to the Registrant’s Annual Report on Form 10-K filed on March 13, 2019.)

Securities Purchase Agreement (Incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on December 20, 2019.)

Registration Rights Agreement (Incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed on December 20, 2019.)

Manufacture and Supply Agreement, dated as of April 26, 2019, between Savara ApS and GEMABIOTECH SAU (Incorporated by reference to Exhibit 10.1 of the Registrant’s Quarterly Report on Form 10-Q filed on May 9, 2019.)

Master Manufacturing Services Agreement, dated June 26, 2019, between Savara ApS and Patheon UK Limited.

(Incorporated by reference to Exhibit 10.2 of the Registrant’s Quarterly Report on Form 10-Q filed on August 8, 2019.)

Restricted Stock Unit Agreement (Inducement Grant) between Badrul Chowdhury and Savara Inc.

dated November 26, 2019 (Incorporated by reference to Exhibit 4.2 to the Registrant’s Registration Statement on Form S-8 filed on April 17, 2020.)

Non-statutory Stock Option Agreement (Inducement Award) between Badrul Chowdhury and Savara Inc.

dated November 26, 2019 (Incorporated by reference to Exhibit 10.37 to the Registrant’s Annual Report on Form 10-K filed on March 12, 2020.)

Third Amendment, dated January 31, 2020, to Loan and Security Agreement, dated April 28, 2017, as amended on October 31, 2017 and December 4, 2018, among the Registrant, Aravas Inc.

and Silicon Valley Bank (Incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on February 3, 2020.)

Executive Employment Agreement, dated September 6, 2019, between Savara Inc.

and Badrul Chowdhury, Chief Medical Officer (Incorporated by reference to Exhibit 10.39 to the Registrant’s Annual Report on Form 10-K filed on March 12, 2020.)

License and Collaboration Agreement between Savara Inc.

and Grifols, S.A, dated January 7, 2020, as amended by Amendment No.

1, dated February 18, 2020, and Amendment No.

2, dated March 31, 2020 (Incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q filed on May 7, 2020.)

Amended and Restated Executive Employment Agreement, dated December 8, 2020, between Savara Inc.

and Matthew Pauls (Incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on December 10, 2020.)

List of Subsidiaries (Incorporated by reference to Exhibit 21.1 of the Registrant’s Annual Report on 10-K filed on March 14, 2018.)

Consent of RSM US LLP, Independent Registered Public Accounting Firm

Power of Attorney included on page 63 of this Form 10-K

Certification of principal executive officer pursuant to Rule 13a-14(a)/15d-14(a)

Certification of principal financial officer pursuant to Rule 13a-14(a)/15d-14(a)

Certification of principal executive officer and principal financial officer pursuant to 18 U.S.C.

1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because XBRL tags are embedded within the Inline XBRL document.

Inline XBRL Taxonomy Extension Schema Document

Inline XBRL Taxonomy Extension Calculation Linkbase Document

Inline XBRL Taxonomy Extension Definition Linkbase Document

Inline XBRL Taxonomy Extension Label Linkbase Document

Inline XBRL Taxonomy Extension Presentation Linkbase Document

Cover Page Interactive Data File (embedded within the Inline XBRL document)

Indicates management contract or compensatory plan

Indicates confidential treatment has been granted to certain portions of this exhibit, which portions have been omitted and filed separately with the SEC.

These certifications are being furnished solely to accompany this report pursuant to 18 U.S.C.

1350, and are not being filed for purposes of Section 18 of the Securities Exchange Act of 1934 and are not to be incorporated by reference into any filing of the registrant, whether made before or after the date hereof, regardless of any general incorporation by reference language in such filing.

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized .

March 10, 2021

/s/ Matthew Pauls

Chief Executive Officer

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below hereby constitutes and appoints Matthew Pauls and Dave Lowrance, and each of them acting individually, as his or her attorney-in-fact, each with full power of substitution, for him or her in any and all capacities, to sign any and all amendments to this Report on Form 10-K, and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming our signatures as they may be signed by our said attorney to any and all amendments to said Report.

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this Report has been signed below by the following persons on behalf of the Registrant in the capacities and on the dates indicated.

/s/ Matthew Pauls

Chief Executive Officer and Chairman

(Principal Executive Officer)

March 10, 2021

Matthew Pauls

/s/ Dave Lowrance

Chief Financial Officer

(Principal Financial and Accounting Officer)

March 10, 2021

Dave Lowrance

/s/ David Ramsay

March 10, 2021

/s/ Joseph McCracken

March 10, 2021

Joseph McCracken

/s/ Nevan Elam

March 10, 2021

/s/ Rick Hawkins

March 10, 2021

/s/ An Van Es-Johansson

March 10, 2021

An Van Es-Johansson

/s/ Ricky Sun

March 10, 2021

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Reports of Independent Registered Public Accounting Firm

Consolidated Balance Sheets as of December 31, 2020 and 2019

Consolidated Statements of Operations and Comprehensive Loss for the years ended December 31, 2020 and 2019

Consolidated Statements of Changes in Stockholders’ Equity for the years ended December 31, 2020 and 2019

Consolidated Statements of Cash Flows for the years ended December 31, 2020 and 2019

Notes to Consolidated Financial Statements

Report of Independent Registered Public Accounting Firm

To the Stockholders and the Board of Directors of Savara Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Savara Inc.

and its subsidiaries (collectively, the Company) as of December 31, 2020 and 2019, the related consolidated statements of operations and comprehensive loss, changes in stockholders’ equity, and cash flows for the years then ended, and the related notes to the consolidated financial statements (collectively, the financial statements).

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on the Company’s financial statements based on our audits.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.

As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.

Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that:

(1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Accrued Research and Development Costs

As described in Note 2 to the financial statements, the Company records expenses of research and development activities, including nonclinical studies, and third-party contract services for clinical trials and manufacturing development.

Clinical trials and contract manufacturing activities performed by third parties are expensed based upon estimates of work completed with respective contract research organizations (CROs) or contract manufacturing organizations (CMOs) and other third-party vendors.

Though expenses are based on signed agreements, the complexity involved in determining expenses arises from agreements containing multiple milestones that require management’s careful analysis with external parties to determine period expenses and potential contractual milestone expenses based on the progress made against benchmarks including, but not limited to, patients enrolled, services performed and equipment purchased.

During 2020, the Company incurred $35.0 million of research and development expenses.

The Company recorded an accrued liability of $2.6 million for expenses incurred, but not yet invoiced, and a prepaid expense of $0.6 million for payments made to vendors in excess of costs incurred.

Given the significant judgments and estimates in accounting for accrued research and development costs, we have determined this area, specifically cutoff, a critical audit matter.

Our audit procedures related to the Company’s accrued research and development costs included the following among others:

We obtained an understanding, and evaluated the design and implementation, of controls relating to accrued or prepaid research and development costs, including controls over the review of contracts, and the accumulation of information from external service providers on actual costs incurred.

We evaluated , on a sample basis, the reasonableness of management’s methods and assumptions used in developing the accrued or prepaid research and development costs by:

Agreeing key milestones and completion terms, activities, timing and costs per management-provided schedules to signed and executed CMO and CRO contracts

Obtaining evidence from third parties of the research and development activities performed for significant clinical trials and contract manufacturing services

Inquiring of financial and clinical personnel on the status of the clinical trials, progress to completion of clinical trials, method of allocating contractual charges to specific tasks performed during the clinical trials and the status of change orders

Retrospective review of quarterly analysis to assess the historical accuracy of management’s analysis

/s/ RSM US LLP

We have served as the Company's auditor since 2019.

Austin, Texas

March 10, 2021

and Subsidiaries

Consolidated Balance Sheets

(in thousands, except for share and per share amounts)

As of December 31,

Current assets:

Cash and cash equivalents

Short-term investments

Prepaid expenses and other current assets

Total current assets

Property and equipment, net

In-process R&D

Other non-current assets

Liabilities and stockholders’ equity

Current liabilities:

Accounts payable

Accrued expenses and other current liabilities

Debt facility

Total current liabilities

Long-term liabilities:

Debt facility

Other long-term liabilities

Total liabilities

Stockholders’ equity:

Common stock, $ 0.001 par value, 200,000,000 shares authorized as of

December 31, 2020 and 2019;

54,152,955 and 50,790,441 shares issued

and outstanding as of December 31, 2020 and 2019, respectively

Additional paid-in capital

Accumulated other comprehensive income (loss)

Accumulated deficit

Total stockholders’ equity

Total liabilities and stockholders' equity

The accompanying notes are an integral part of these consolidated financial statements.

and Subsidiaries

Consolidated Statements of Operations and Comprehensive Loss

(in thousands, except for share and per share amounts)

Years ended December 31,

Milestone revenue

Operating expenses:

Research and development

General and administrative

Impairment of goodwill

Depreciation and amortization

Total operating expenses

Loss from operations

Other income (expense), net:

Interest expense, net

Foreign currency exchange gain (loss)

Tax credit income

Change in fair value of financial instruments

Total other income (expense), net

Net loss per share:

Basic and diluted

Weighted average common shares outstanding:

Basic and diluted

Other comprehensive income (loss):

Gain (loss) on foreign currency translation

Unrealized gain (loss) on short-term investments

Total comprehensive loss

The accompanying notes are an integral part of these consolidated financial statements.

and Subsidiaries

Consolidated Statements of Changes in Stockholders’ Equity

Years Ended December 31, 2020 and 2019

(in thousands, except share amounts)

Stockholders’ Equity

Comprehensive

Income (Loss)

Balance on December 31, 2018

Issuance of securities in private placement, net closing costs

Issuance of common stock upon at the market offerings, net

Issuance of common stock upon settlement of contingent liability

Issuance of common stock for settlement of RSUs

Net issuance of common stock upon cashless exercise of warrants

Issuance of common stock upon exercise of stock options

Stock-based compensation

Foreign exchange translation adjustment

Unrealized gain on short-term investments

Balance on December 31, 2019

Issuance of common stock for licensing of assets

Issuance of common stock upon at the market offerings, net

Issuance of common stock upon exercise of Milestone Warrants, net

Issuance of common stock for settlement of RSUs

Issuance of common stock upon exercise of stock options

Closing costs for previous issuance of securities in

private placement

Incremental cost due to modification of detachable

warrants previously issued with debt instrument

Stock-based compensation

Foreign exchange translation adjustment

Unrealized loss on short-term investments

Balance on December 31, 2020

The accompanying notes are an integral part of these consolidated financial statements.

and Subsidiaries

Consolidated Statements of Cash Flows

(in thousands)

Years ended December 31,

Cash flows from operating activities:

Adjustments to reconcile net loss to net cash used in operating activities:

Depreciation and amortization

Amortization of right-of-use assets

Impairment of goodwill

Acquired in-process research and development (Note 8)

Change in fair value of financial instruments

Change in fair value of contingent consideration

Noncash interest (income) expense

Foreign currency (gain) loss

Amortization of debt issuance costs

Accretion on discount to short-term investments

Gain on short-term investments

Stock-based compensation

Changes in operating assets and liabilities:

Prepaid expenses and other current assets

Non-current assets

Accounts payable and accrued expenses and other current liabilities

Long-term liabilities

Net cash used in operating activities

Cash flows from investing activities:

Purchase of property and equipment

Purchase of in-process research and development (Note 8)

Purchase of available-for-sale securities, net

Maturities of available-for-sale securities

Sales of available-for-sale securities, net

Net cash provided by investing activities

Cash flows from financing activities:

Repayment of debt facility

Issuance of common stock upon exercise of warrants

Issuance of securities in private financing, net

Issuance of common stock upon at the market offerings, net

Proceeds from exercise of stock options

Capital lease obligation principal payments

Net cash provided by financing activities

Effect of exchange rate changes on cash and cash equivalents

Increase (decrease) in cash and cash equivalents

Cash and cash equivalents beginning of period

Cash and cash equivalents end of period

Non-cash transactions:

Common stock issued for acquired in-process research and development, net

Settlement of contingent consideration

Supplemental disclosure of cash flow information:

Cash paid for interest

The accompanying notes are an integral part of these consolidated financial statements.

and Subsidiaries

Notes to Consolidated Financial Statements

Description of Business and Basis of Presentation

Description of Business

(together with its subsidiaries “Savara,” the “Company,” “we,” “our,” or “us”) is an orphan lung disease company.

The Company’s lead program, molgramostim, is an inhaled granulocyte-macrophage colony-stimulating factor (“GM-CSF”) in Phase 3 development for autoimmune pulmonary alveolar proteinosis (“aPAP”).

Prior to December 31, 2020, the Company’s pipeline also included vancomycin hydrochloride inhalation powder (“vancomycin”) for persistent methicillin-resistant Staphylococcus aureus (“MRSA”) lung infection in people living with cystic fibrosis (“CF”) and Apulmiq inhaled ciprofloxacin for non-CF bronchiectasis.

The Company and its wholly-owned subsidiaries operate in one segment with its principal offices in Austin, Texas, USA.

Since inception, Savara has devoted substantially all of its efforts and resources to identifying and developing its product candidates, recruiting personnel, and raising capital.

Savara has incurred operating losses and negative cash flow from operations and has no product revenue from inception to date.

The Company has not yet commenced commercial operations.

Basis of Presentation

The consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States (“U.S.

GAAP”) as defined by the Financial Accounting Standards Board (the “FASB”).

Certain prior year amounts have been reclassified for consistency with the current period presentation.

Summary of Significant Accounting Policies

As of December 31, 2020, the Company had an accumulated deficit of approximately $ 257.5 million.

The Company used cash from operations of approximately $ 39.8 million for the year ended December 31, 2020.

The cost to further develop and obtain regulatory approval for any drug is substantial and, as noted below, the Company may have to take certain steps to maintain a positive cash position.

Accordingly, the Company will need additional capital to further fund the development of, and seek regulatory approvals for, its product candidates and begin to commercialize any approved products.

Currently, the Company is primarily focused on the development of respiratory drugs and believes such activities will result in the Company’s continued incurrence of significant research and development and other expenses related to those programs.

If the clinical trials for any of the Company’s product candidates fail or produce unsuccessful results and those product candidates do not gain regulatory approval, or if any of the Company’s product candidates, if approved, fail to achieve market acceptance, the Company may never become profitable.

Even if the Company achieves profitability in the future, it may not be able to sustain profitability in subsequent periods.

The Company intends to cover its future operating expenses through cash and cash equivalents on hand and through a combination of equity offerings, debt financings, government or other third-party funding, and other collaborations and strategic alliances.

The Company cannot be sure that additional financing will be available when needed or that, if available, financing will be obtained on terms favorable to the Company or its stockholders .

The Company had cash and cash equivalents of $ 22.9 million and short-term investments of $ 59.3 million as of December 31, 2020, which is sufficient to fund the Company's operations for the twelve months subsequent to the issuance date of its consolidated financial statements for the year ended December 31, 2020.

We intend to continue to raise additional capital as needed through the issuance of additional equity and potentially through borrowings, and strategic alliances with partner companies.

However, if such financings are not available timely and at adequate levels, the Company will need to re-evaluate its long-term operating plans.

The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Principles of Consolidation

The consolidated financial statements of the Company are stated in U.S.

These financial statements include the accounts of the Company and its wholly-owned subsidiaries.

The financial statements of the Company’s wholly-owned subsidiaries are recorded in their functional currency and translated into the reporting currency.

The cumulative effect of changes in exchange rates between the foreign entity’s functional currency and the reporting currency is reported in “Accumulated other comprehensive income (loss).” All intercompany transactions and accounts have been eliminated in consolidation.

Use of Estimates

The preparation of financial statements in conformity with U.S.

GAAP requires the Company to make certain estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes.

Management’s estimates include those related to the accrual of research and development and general and administrative costs, certain financial instruments recorded at fair value, stock-based compensation, and the valuation allowance for deferred tax assets.

The Company bases its estimates on historical experience and on various other market-specific and relevant assumptions that it believes to be reasonable under the circumstances.

Accordingly, actual results could be materially different from those estimates.

Risks and Uncertainties

The product candidates being developed by the Company require approval from the U.S.

Food and Drug Administration (the “FDA”) or foreign regulatory agencies prior to commercial sales.

There can be no assurance that the Company’s product candidates will receive the necessary approvals.

If the Company is denied regulatory approval of its product candidates, or if approval is delayed, it will have a material adverse impact on the Company’s business, results of operations and financial position.

The Company is subject to a number of risks similar to other life science companies, including, but not limited to, risks related to the successful discovery and development of drug candidates, raising additional capital, development of competing drugs and therapies, protection of proprietary technology and market acceptance of the Company’s products.

As a result of these and other factors and the related uncertainties, there can be no assurance of the Company’s future success.

Cash and Cash Equivalents

Cash and cash equivalents consist of cash and institutional bank money market accounts with original maturities of three months or less when acquired and are stated at cost, which approximates fair value.

Short-term Investments

The Company has classified its investments in debt securities with readily determinable fair value as available-for-sale securities.

These securities are carried at estimated fair value with the aggregate unrealized gains and losses related to these investments reflected as a part of “Accumulated other comprehensive income (loss)” within stockholders’ equity.

The fair value of the investments is based on the specific quoted market price of the securities or comparable securities at the balance sheet dates.

Investments in debt securities are considered to be impaired when a decline in fair value is judged to be other than temporary because the Company either intends to sell or it is more-likely-than not that it will have to sell the impaired security before recovery.

Once a decline in fair value is determined to be other than temporary, an impairment charge is recorded and a new cost basis in the investment is established.

Concentration of Credit Risk

Financial instruments, which potentially subject the Company to concentrations of credit risk, consist principally of cash and cash equivalents and short-term investments held in money market accounts.

The Company places its cash and cash equivalents and money market accounts with a limited number of financial institutions and at times may exceed the amount of insurance provided on such deposits.

Accrued Research and Development Costs

The Company records the costs associated with research, nonclinical and clinical trials, and manufacturing development as incurred.

These costs are a significant component of the Company’s research and development expenses, with a substantial portion of the Company’s on-going research and development activities conducted by third party service providers, including contract research and manufacturing organizations.

The Company accrues for expenses resulting from obligations under agreements with contract research organizations (“CROs”), contract manufacturing organizations (“CMOs”), and other outside service providers for which payment flows do not match the periods over which materials or services are provided to the Company.

Accruals are recorded based on estimates of services received and efforts expended pursuant to agreements established with CROs, CMOs, and other outside service providers.

The Company makes significant judgments and estimates in determining the accrual balance in each reporting period.

As actual costs become known, the Company adjusts its prepaids and accruals.

Inputs, such as the services performed, the number of patients enrolled, or the trial duration, may vary from the Company’s estimates, resulting in adjustments to research and development expense in future periods.

Changes in these estimates that result in material changes to the Company’s accruals could materially affect the Company’s results of operations.

To date, the Company has not experienced any material deviations between accrued and actual research and development expenses.

Business Combinations

Assets acquired and liabilities assumed as part of a business acquisition are recorded at their estimated fair value at the date of acquisition.

The excess of purchase price over the fair value of assets acquired and liabilities assumed is recorded as goodwill.

Determining fair value of identifiable assets, particularly intangibles, and liabilities acquired also requires management to make estimates, which are based on all available information and, in some cases, assumptions with respect to the timing and amount of future revenue and expenses associated with an asset.

License and Collaboration Agreements

The Company entered into a license and collaboration agreement and may continue to enter into license and collaboration agreements with third parties whereby the Company purchases the rights to develop, market, sell and/or distribute the underlying pharmaceutical products or drug candidates.

Pursuant to these agreements, the Company is generally required to make up-front payments, milestone payments contingent upon the achievement of certain pre-determined criteria, royalty payments based on specified sales levels of the underlying products and/or certain other payments.

Up-front payments are either expensed immediately as research and development or capitalized.

The determination to capitalize amounts related to licenses is based on management’s judgments with respect to stage of development, the nature of the rights acquired, alternative future uses, developmental and regulatory issues and challenges, the net realizable value of such amounts based on projected sales of the underlying products, the commercial status of the underlying products, and/or various other competitive factors.

Milestone payments made prior to regulatory approval are generally expensed as incurred and milestone payments made subsequent to regulatory approval are generally capitalized as an intangible asset.

Royalty payments are expensed as incurred.

Other payments made pursuant to license and collaboration agreements, which are generally related to research and development activities, are expensed as incurred.

Goodwill and Acquired In-Process Research and Development

Although the Company does no t have any goodwill as of December 31, 2020, it has adopted the following accounting policy.

Goodwill represents the excess of purchase price over the fair value of net assets acquired by the Company.

Goodwill is not amortized but assessed for impairment on an annual basis or more frequently if impairment indicators exist.

Current guidance issued by the FASB, as previously adopted by the Company, provides an impairment model whereby the Company has the option to implement a one-step method for determining impairment of goodwill, simplifying the subsequent measurement of goodwill by eliminating Step 2 (quantitative calculation of measuring a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount of that goodwill) from the goodwill impairment test.

Under the amendments in this guidance, an entity should perform its annual goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount.

An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value;

however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit.

Additionally, an entity should consider income tax effects from any tax-deductible goodwill on the carrying amount of the reporting unit when measuring the goodwill impairment loss, if applicable.

Acquired in-process research and development (“IPR&D”) is considered an indefinite-lived intangible asset and is assessed for impairment annually or more frequently if impairment indicators exist.

For the year ended December 31, 2020, the impact of COVID-19 did not trigger any impairment indicators.

The Company adopted accounting guidance related to its annual acquired IPR&D impairment test, a two-step method, which allows the Company to first assess qualitative factors before performing a quantitative assessment of the fair value of a reporting unit.

If it is determined on the basis of qualitative factors that the fair value of the IPR&D is more likely than not less than the carrying amount, a quantitative impairment test is required.

If the associated research and development effort is abandoned, the related asset will be written-off, and the Company will record a noncash impairment loss on its consolidated statements of operations and comprehensive loss.

For those products that reach commercialization, the IPR&D asset will be amortized over its estimated useful life.

The Company performs its annual goodwill impairment test and IPR&D impairment test, as described above, as of June 30th and September 30th, respectively, or whenever an event or change in circumstances occur that would require reassessment of the recoverability of those assets.

For the year ended December 31, 2019, the Company experienced a decrease of approximately $ 0.3 million in the carrying value of IPR&D, which was due to foreign currency translation.

In June 2019, the Company determined that the results from its Phase 3 trial for the use of molgramostim for the treatment of aPAP required an assessment for impairment of both its IPR&D and goodwill.

Upon completion of the aforementioned qualitative and quantitative impairment testing of its IPR&D and quantitative impairment testing of its goodwill, the Company concluded that there was no impairment to its IPR&D;

however, goodwill was impaired, resulting in an impairment of $ 7.4 million in the carrying value of goodwill.

The Company also determined that a triggering event had occurred during the fourth quarter of 2019 under which the Company’s stock price experienced another significant decline requiring the

impairment testing of its goodwill which result ed in an impairment charge of $ 19.4 million in the fourth quarter of 2019 , reducing the Company’s carrying value of its goodwill to its fair value, which was determined to be zero .

Similarly, the Company completed the aforementioned qualitative and quantitative impairment testing of its IPR&D following this fourth quarter 2019 triggering event and concluded that there was no impairment to its IPR&D .

The Company also considered whether a triggering event had occurred during the fourth quarter of 2020 under which the Company’s market cap was below carrying value.

The Company completed a qualitative and quantitative impairment testing of its IPR&D and concluded that there was no impairment.

For the year ended December 31, 2020, the Company experienced an increase of approximately $ 1.1 million in the carrying value of IPR&D, which was due to foreign currency translation.

Tax Credit Receivable

The Company has recorded a Danish tax credit earned by its subsidiary, Savara ApS, as of December 31, 2020.

Under Danish tax law, Denmark remits a research and development tax credit equal to 22 % of qualified research and development expenditures, not to exceed established thresholds.

During the year ended December 31, 2019, the Company generated a Danish tax credit of $ 0.8 million which was received in the third quarter of 2020.

During the year ended December 31, 2020, the Company generated a Danish tax credit of $ 0.9 million which is recorded in “Prepaid expenses and other current assets” and is expected to be received in the fourth quarter of 2021.

The Company also recorded an Australian tax credit as provided by the Australian Taxation Office for qualified research and development expenditures incurred through our subsidiary, Savara Australia Pty.

Under Australian tax law, Australia remits a research and development tax credit equal to 43.5 % of qualified research and development expenditures, not to exceed established thresholds.

During the year ended December 31, 2019, the Company generated an Australian tax credit of $ 0.4 million which was received during the third quarter of 2020.

During the year ended December 31, 2020, the Company generated an Australian tax credit of $ 0.1 million which is recorded in “Prepaid expenses and other current assets” and is expected to be received during the year ended December 31, 2021.

In February 2016, the FASB issued Accounting Standards Update (“ASU”) No.

2016-02, “Leases (Topic 842)” (“ASU 2016-02”) as codified in Accounting Standards Codification (“ASC”) No.

842 (“ASC 842”).

ASU 2016-02, ASC 842, and additional issued guidance are intended to improve financial reporting of leasing transactions by requiring organizations that lease assets to recognize assets and liabilities for the rights and obligations created by leases that extend more than twelve months.

This accounting update also requires additional disclosures surrounding the amount, timing, and uncertainty of cash flows arising from leases.

ASU 2016-02 is effective for financial statements issued for annual and interim periods beginning after December 15, 2018 for public business entities.

The Company adopted ASU 2016-02 as of January 1, 2019 using the effective date transition method of implementation offered under ASU 2018-11, “Leases (Topic 842) – Targeted Improvements” issued in July 2018 (“ASU 2018-11”), under which entities may change their date of initial application of ASU 2016-02 to the beginning of the period of adoption, or January 1, 2019, in the case of Savara.

Accordingly, the Company is required to apply the prior lease guidance pursuant to ASC Topic 840 “Leases” in the comparative periods, provide the disclosures required by ASC Topic 840 for all periods that continue to be presented in accordance with ASC Topic 840, recognize the effects of applying ASC 842 as a cumulative-effect adjustment to retained earnings as of January 1, 2019, if any, and provide certain disclosures under ASC 842 (see Note 12).

The Company has also elected the package of practical expedients, applied by class of underlying asset, permitted in ASU 2018-11.

Accordingly, the Company accounted for its existing operating leases as operating leases under the new guidance, without reassessing (a) whether the contracts contain a lease under ASC 842, (b) whether classification of the operating leases would be different in accordance with ASC 842, and (c) whether the unamortized initial direct costs before transition adjustments (as of the period of adoption) would have met the definition of initial direct costs in ASC 842 at lease commencement, and the Company did not separate lease and non-lease components.

As a result of the adoption of the new lease accounting guidance using the effective date transition method, on January 1, 2019, the Company recognized (a) a lease liability of approximately $ 1.4 million, which represents the present value of the remaining lease payments, as of the date of adoption, of approximately $ 1.5 million, discounted using the Company’s incremental borrowing rate of 8.5 %, and (b) a right-of-use asset of approximately $ 1.4 million.

The adoption of the new standard did not result in any adjustment to the Company’s retained earnings as of January 1, 2019.

The adoption of this standard did not have a material impact on the Company’s consolidated balance sheets, cash used/provided from operating, investing, or financing activities in the consolidated statements of cash flows, or on the Company’s operating results.

The most significant impact was the recognition of right-of-use assets for operating leases, which are reflected in “Other non-current assets,” and lease liabilities for operating leases, which are reflected in “Accrued expenses and other current liabilities,” for the current portion of the lease liabilities, and in “Other long-term liabilities” for the non-current portion of the lease liabilities, respectively (See Note 12).

Segment Reporting

Operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision maker, or decision making group, in making decisions on how to allocate resources and assess performance.

Our chief operating decision maker is the chief executive officer.

We have one operating segment, specialty pharmaceuticals within the respiratory system.

Property and Equipment

Property and equipment are stated at cost, net of accumulated depreciation.

Depreciation is determined on a straight-line basis over the estimated useful lives of the assets, which range from three to five years .

Repairs and maintenance that do not improve or extend the useful life of the respective asset are charged to expense as incurred.

Patents and Intellectual Property

As the Company’s products are currently under research and development and are not currently approved for market, costs incurred in connection with patent applications are expensed as incurred due to the uncertainty of the future economic benefits of the underlying patents and intellectual property.

Fair Value of Financial Instruments

The accounting standard for fair value measurements provides a framework for measuring fair value and requires disclosures regarding fair value measurements.

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, based on the Company’s principal or, in absence of a principal, most advantageous market for the specific asset or liability.

The Company uses a three-tier fair value hierarchy to classify and disclose all assets and liabilities measured at fair value on a recurring basis, as well as assets and liabilities measured at fair value on a non-recurring basis, in periods subsequent to their initial measurement.

The hierarchy requires the Company to use observable inputs when available, and to minimize the use of unobservable inputs, when determining fair value.

The three tiers are defined as follows:

Level 1 – Observable inputs that reflect quoted market prices (unadjusted) for identical assets or liabilities in active markets;

Level 2 – Observable inputs other than quoted prices in active markets that are observable either directly or indirectly in the marketplace for identical or similar assets and liabilities;

Level 3 – Unobservable inputs that are supported by little or no market data, which require the Company to develop its own assumptions.

Financial instruments carried at fair value include cash and cash equivalents, short-term investments, and foreign exchange derivatives not designated as hedging instruments.

Financial instruments not carried at fair value include accounts payable and accrued liabilities.

The carrying amounts of these financial instruments approximate fair value due to the highly liquid nature of these short-term instruments.

Revenue Recognition

The Company records revenue based on a five-step model in accordance with ASC 606, “Revenue from Contracts with Customers.” To date, the Company has not generated any product revenue.

The Company’s ability to generate product revenues, which the Company does not expect will occur in the next two to three years, if ever, will depend heavily on the successful development, regulatory approval, and eventual commercialization of the Company’s product candidates.

Milestone Revenue

The Company entered into a license agreement related to its molgramostim product candidate, which includes certain milestone payments to be remunerated by the licensee to Savara.

In exchange, the Company granted the licensee an exclusive right to import, market, sell, distribute and promote molgramostim in Japan for the treatment of aPAP.

Pursuant to the license agreement, the Company identifies the performance obligations, determines the transaction price, allocates the contract transaction price to the performance obligations, and recognizes the revenue when (or as) the performance obligation is satisfied.

The Company identifies the performance obligations included within the license agreement and evaluates which performance obligations are distinct.

The milestone payments are a form of variable consideration as the payments are contingent upon achievement of a substantive event.

The milestone payments are estimated and included in the transaction price when the Company determines, under the variable consideration constraint, that it is probable that there will not be a significant reversal of cumulative revenue recognized in future periods.

The transaction price is then allocated to each performance obligation on a relative stand-alone selling price basis, for which the Company recognizes revenue as or when the performance obligations under the contract are satisfied.

At the end of each subsequent reporting period, the Company re-evaluates the probability of achievement of such milestones and any related constraint, and if necessary, adjusts the estimate of the overall transaction price.

In October 2018, the Company achieved a milestone payment pursuant to this license agreement resulting in the receipt of $ 0.2 million from the licensee which was recorded as deferred revenue in “Accrued expenses and other current liabilities” in the Company’s condensed consolidated balance.

On February 21, 2020, the Company received notification from the licensee of its intent to terminate this license agreement.

Accordingly, this license agreement terminated on August 21, 2020 , upon which the Company recognized revenue related to this $ 0.3 million milestone payment, increased from $ 0.2 million due to changes in foreign currency exchange rates, as the Company has determined that all of the performance obligations under this license agreement have been met.

Net Loss per Share

Basic net loss attributable to common stockholders per share is calculated by dividing the net loss attributable to common stockholders by the weighted average number of shares of common stock and pre-funded warrants outstanding during the period without consideration of common stock equivalents.

Since the Company was in a loss position for all periods presented, diluted net loss per share is the same as basic net loss per share for all periods presented as the inclusion of all potential dilutive securities would have been antidilutive.

Stock-Based Compensation

The Company recognizes the cost of stock-based awards granted to employees based on the estimated grant-date fair value of the awards.

The value of the portion of the award is recognized as expense ratably over the requisite service period.

The Company recognizes the compensation costs for awards that vest over several years on a straight-line basis over the vesting period (see Note 14).

Forfeitures are recognized when they occur, which may result in the reversal of compensation costs in subsequent periods as the forfeitures arise.

In addition, the Company accounts for any modifications to stock-based awards in accordance with ASC Topic 718, “Compensation – Stock Compensation.”

The Company uses the asset and liability method of accounting for income taxes.

Under this method, deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the carrying amounts and the tax basis of assets and liabilities.

Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.

The effect of a change in tax rates on deferred tax assets and liabilities will be recognized in the period that includes the enactment date.

A valuation allowance is established against the deferred tax assets to reduce their carrying value to an amount that is more-likely-than not to be realized.

Manufacturing and Other Commitments and Contingencies

The Company is subject to various royalties and manufacturing and development payments related to its product candidate, molgramostim.

Under a manufacture and supply agreement with the active pharmaceutical ingredients (“API”) manufacturer for molgramostim, Savara must make certain payments to the API manufacturer upon achievement of the milestones outlined in the table set forth below.

Additionally, upon first receipt of marketing approval by Savara from a regulatory authority in a country for a product containing the API for therapeutic use in humans and ending the earlier of (i) ten (10) years thereafter or (ii) the date a biosimilar of such product is first sold in such country, Savara shall pay the API manufacturer a royalty equal to low-single digits of the net sales in that country.

The Company is also subject to certain contingent milestone payments, disclosed in the following table, payable to the manufacturer of the nebulizer used to administer molgramostim.

The change in the amount of the milestone payments from December 31, 2019 to December 31, 2020 was related to changes in foreign currency exchange rate, the accrual of a milestone equal to approximately $ 0.2 million due to the completion of our Phase 2a trial of the use of molgramostim for the treatment of nontuberculous mycobacterial (“NTM”) in patients not affected by cystic fibrosis, and the elimination of approximately $ 1.9 million in milestone payments related to the treatment of NTM as the Company is not planning to conduct further development activities related to molgramostim in NTM and instead plans to focus its development efforts of molgramostim on its lead indication, aPAP.

In addition, milestone payments totaling $ 5.2 million reflected in the following table relate to types of nebulizer delivery systems that are not currently being utilized in any of the studies in our development pipeline.

In addition to these milestones, the Company will owe a royalty to the manufacturer of the nebulizer based on net sales.

The royalty rate ranges from three-and one-half percent ( 3.5 %) to five percent ( 5 %) depending on the device technology used by the Company to administer the product.

Manufacturing, Development, and Other Contingent Milestone Payments (in thousands):

December 31, 2020

Molgramostim manufacturer:

Achievement of certain milestones related to validation

of API and regulatory approval of molgramostim

Molgramostim nebulizer manufacturer:

Achievement of various development activities and

regulatory approval of nebulizer utilized to administer

Total manufacturing and other commitments

The milestone commitments disclosed above reflect the activities that have (i) no t been met or incurred;

(ii) no t been remunerated;

and (iii) no t accrued, as the activities are not deemed probable or reasonably estimable, as of December 31, 2020.

Recent Accounting Pronouncements

In August 2018, the FASB issued ASU 2018-13, “Fair Value Measurement (Topic 820):

Disclosure Framework- Changes to the Disclosure Requirements for Fair Value Measurement.” The update eliminates, adds, and modifies certain disclosure requirements for fair value measurements as part of its disclosure framework project.

ASU 2018-13 was adopted on January 1, 2020 and did not have a material impact on our consolidated financial statements.

In November 2018, the FASB issued ASU 2018-18, “Collaborative Arrangements (Topic 808):

Clarifying the Interaction between Topic 808 and Topic 606.” The update clarifies that certain transactions between collaborative partners should be accounted for as revenue under the new revenue standard ASC 606 when the collaborative partner is a customer, specifies the unit of account for determining whether a transaction with a customer is a distinct good or service under ASC 606, and precludes a company from presenting transactions with a collaborative partner that are not in the scope of ASC 606 together with revenue from contracts with customers.

ASU 2018-18 was adopted on January 1, 2020 and did not impact on our consolidated financial statements.

In March 2019, the FASB issued ASU 2019-01, “Leases (Topic 842):

Codification Improvements,” which aims to clarify and revise guidance for certain lessors and clarify interim transition disclosure requirements for ASC 842.

ASU 2019-01 was effective on January 1, 2020 and the adoption did not have a material impact on our consolidated financial statements.

In April 2019, the FASB issued ASU 2019-04, “Codification Improvements to Topic 326, Financial Instruments—Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments.” The Company has reviewed ASU 2019-01 and concluded that it has no impact on our consolidated financial statements.

In November 2019, the FASB issued ASU 2019-08, “Compensation—Stock Compensation (Topic 718) and Revenue from Contracts with Customers (Topic 606):

Codification Improvements—Share-Based Consideration Payable to a Customer” which requires that an entity measure and classify share-based payment awards granted to a customer by applying the guidance in Topic 718 whereby the amount recorded as a reduction of the transaction price is required to be measured on the basis of the grant-date fair value of the share-based payment award in accordance with Topic 718.

ASU 2019-08 was effective on January 1, 2020 , and the adoption did not impact our consolidated financial statements.

In November 2019, the FASB issued ASU 2019-11, “Codification Improvements to Topic 326, Financial Instruments—Credit Losses” as a separate update for improvements to the amendments in ASU 2016-13 to increase stakeholder awareness of those amendments and to expedite the improvement process.

ASU 2019-11 is effective on January 1, 2023.

The Company has reviewed ASU 2019-11 and concluded that it does not have a material impact on our consolidated financial statements.

In December 2019, the FASB issued ASU 2019-12, “Income Taxes (Topic 740):

Simplifying the Accounting for Income Taxes” which aims to simplify the accounting for income taxes by removing certain exceptions to the general principles in Topic 740 and improve consistent application of and simplify GAAP for other areas of Topic 740 by clarifying and amending existing guidance.

ASU 2019-12 is effective for us on January 1, 2021.

The Company has reviewed ASU 2019-12 and concluded that it does not have a material impact on our consolidated financial statements.

In January 2020, the FASB issued ASU 2020-01, “Investments—Equity Securities (Topic 321), Investments—Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815)—Clarifying the Interactions between Topic 321, Topic 323, and Topic 815 (a consensus of the Emerging Issues Task Force)” which affect all entities that apply the guidance in Topics 321, 323, and 815 and (1) elect to apply the measurement alternative or (2) enter into a forward contract or purchase an option to purchase securities that, upon settlement of the forward contract or exercise of the purchased option, would be accounted for under the equity method of accounting.

ASU 2020-01 is effective on January 1, 2021.

The Company has reviewed ASU 2020-01 and concluded that it does not have a material impact on our consolidated financial statements.

Prepaid Expenses and Other Current Assets

Prepaid expenses, consisted of (in thousands):

R&D tax credit receivable

Prepaid contracted research and development costs

VAT receivable

Prepaid insurance

Foreign currency exchange derivative

Deposits and other

Total prepaid expenses and other current assets

Accrued Expenses and Other Current Liabilities

Accrued expenses and other liabilities, consisted of (in thousands):

Accrued contracted research and development costs

Accrued general and administrative costs

Accrued compensation

Lease liability

Total accrued expenses and other current liabilities

Short-term Investments

Short-term Investments in Available-for-Sale Securities

The Company’s investment policy seeks to preserve capital and maintain sufficient liquidity to meet operational and other needs of the business.

The following table summarizes, by major security type, the Company’s investments (in thousands):

As of December 31, 2020

Amortized Cost

Gross Unrealized Gains

Gross Unrealized Losses

Short-term investments

government securities

Asset backed securities

Corporate securities

Commercial paper

Total short-term investments

As of December 31, 2019

Amortized Cost

Gross Unrealized Gains

Gross Unrealized Losses

Short-term investments

government securities

Asset backed securities

Corporate securities

Commercial paper

Total short-term investments

The Company has classified its investments as available-for-sale securities.

Classification as short-term or long-term is based upon whether the maturity of the debt securities is less than or greater than twelve months.

There were no significant realized gains or losses related to investments for the years ended December 31, 2020 and 2019.

Property and Equipment, Net

Property and equipment, net consisted of (in thousands):

Research and development equipment

Furniture and fixtures

Leasehold improvements

Total property and equipment

Less accumulated depreciation

Property and equipment, net

Depreciation expense for the years ended December 31, 2020 and 2019 was $ 0.3 million and $ 0.3 million, respectively.

Debt Facility

On April 28, 2017, the Company entered into a loan and security agreement with Silicon Valley Bank, as amended on October 31, 2017 and December 4, 2018 (the “Loan Agreement”).

The Company executed a third amendment (the “Third Amendment”) to the Loan Agreement on January 31, 2020, which provides for a $ 25 million term debt facility.

The Third Amendment extends the interest-only period of the loan repayment through June 30, 2022, with payments thereafter in equal monthly installments of principal plus interest over 18 months.

However, if by March 31, 2021, the Company does not have an ongoing Phase 3 or Phase 4 clinical trial evaluating its molgramostim product for the treatment of aPAP in which the first patient has been dosed, the interest-only period will cease and principal plus interest will be due in equal monthly installments over 24 months beginning on April 1, 2021.

In February 2021, Silicon Valley Bank extended the requirement for the date of the first patient dosed in our Phase 3 IMPALA 2 trial to the end of the second quarter of 2021.

Following the effective date of the Third Amendment, the Company was required to pay a portion of the end of period charge equal to $ 0.5 million under the Loan Agreement to Silicon Valley Bank.

The loan bears interest at the greater of (i) the prime rate reported in The Wall Street Journal, plus a spread of 3.0 % or (ii) 7.75 %.

The Loan Agreement, as amended by the Third Amendment (the “Amended Loan Agreement”), will also require a prepayment fee ( 2.0 % of funded amounts in months 13-24, and 1.0 % thereafter), and an end of term charge equal to 6.0 % of the amount of principal borrowed.

The end of term charge is being accreted through interest expense using the effective interest method through the scheduled maturity date.

Silicon Valley Bank has been granted a perfected first priority lien in all of our assets with a negative pledge on our intellectual property.

The Amended Loan Agreement contains customary affirmative and negative covenants, including among others, covenants limiting our ability and our subsidiaries’ ability to dispose of assets, permit a change in control, merge or consolidate, make acquisitions, incur indebtedness, grant liens, make investments, make certain restricted payments and enter into transactions with affiliates, in each case subject to certain exceptions.

In addition, the Amended Loan Agreement contains an affirmative covenant requiring Savara to deliver evidence by June 30, 2021, of the receipt of gross cash proceeds of at least $ 25 million from the exercise of currently outstanding warrants or the issuance of other equity securities.

Pursuant to the execution and funding of the Loan Agreement and subsequent amendments, the Company issued Silicon Valley Bank and its affiliate warrants to purchase (i) 24,725 shares of the Company’s common stock at an exercise price of $ 9.10 per share, with a ten-year life, expiring April 28, 2027 (“April 2017 Warrants”);

(ii) 41,736 shares of the Company’s common stock at an exercise price of $ 5.39 per share with a ten-year life, expiring June 15, 2027 (“June 2017 Warrants”);

and (iii) 11,332 shares of the Company’s common stock at an exercise price of $ 8.824 per share, with a ten-year life, expiring December 4, 2028 (“December 2018 Warrants”).

The warrants were valued using the Black-Scholes option pricing model at the respective issue date, and the collective fair value of the warrants has been recorded as a debt discount which is being amortized through interest expense using the effective interest method through the scheduled maturity date.

In connection with the execution of the Third Amendment, the Company entered into amendments to each of the outstanding warrants previously issued to Silicon Valley Bank and its affiliate, totaling 77,793 shares, to amend the exercise price to be $ 2.87 per share.

That amendment results in a minimal incremental increase to the fair value of these warrants, determined in accordance with the Black-Scholes option pricing model and ASC 718-20-55, which has been recognized as interest expense.

The Company paid minimal legal costs directly attributable to the original issuance of the debt instrument underlying the Loan Agreement and subsequent amendments.

Such charges were accounted for as debt issuance costs and are being amortized to interest expense using the effective interest method through the scheduled maturity date.

The carrying value and f uture minimum payments under the debt facility are as follows (in thousands):

Year ending December 31,

Total future minimum payments

Unamortized end of term charge

Debt issuance costs

Debt discount related to warrants

Short-term portion

Long-term debt facility

The carrying value of the debt approximates its fair value.

License Agreement

Effective March 31, 2020, the Company entered into a license and collaboration agreement (“License”) that provides Savara an exclusive, worldwide, royalty-bearing license to develop and sell or otherwise commercialize pharmaceutical preparations containing a type of inhaled ciprofloxacin (“Licensed Products”).

The Company paid the licensor (i) an upfront cash payment of approximately $ 3.2 million and (ii) an upfront payment of one million shares of the Company’s common stock valued at approximately $ 2.1 million on the date of issuance upon effectiveness of the License (collectively the “Upfront Payments”).

The Company also agreed to pay the licensor (i) certain developmental milestone payments for the development of the Licensed Products upon regulatory approval for commercial sale and (ii) certain sales milestone payments upon the first achievement of defined annual global net sales (collectively, the “Contingent Consideration”).

Additionally, the Company agreed to pay licensor low double-digit tiered royalties based on annual global net sales of all Licensed Products.

The Company has accounted for the License as an asset acquisition in accordance with ASU 2017-01 “Business Combinations (Topic 805) - Clarifying the Definition of a Business” and ASC 805 “Business Combinations.” Since the Licensed Product has not yet achieved regulatory approval and there is deemed to be no alternative future use, the Company has recorded research and development expense of approximately $ 5.4 million for the Upfront Payments.

The Company has formally announced the termination of any further development of the Licensed Product and, as such, determined that the Contingent Consideration is neither probable nor can the amount be reasonably estimated.

Therefore, no related liability has been recorded.

Fair Value Measurements

The Company measures and reports certain financial instruments at fair value on a recurring basis and evaluates its financial instruments subject to fair value measurements on a recurring basis to determine the appropriate level in which to classify them in each reporting period.

The Company determined that certain investments in debt securities classified as available-for-sale securities were Level 1 financial instruments.

Additional investments in corporate debt securities, commercial paper, and asset-backed securities are considered Level 2 financial instruments because the Company has access to quoted prices but does not have visibility to the volume and frequency of trading for all of these investments.

For the Company’s investments, a market approach is used for recurring fair value measurements and the valuation techniques use inputs that are observable, or can be corroborated by observable data, in an active marketplace.

Foreign exchange derivatives not designated as hedging instruments are considered Level 2 financial instruments.

The Company’s foreign exchange derivative instruments are typically short-term in nature.

The fair value of these instruments as of December 31, 2020 and 2019 was as follows (in thousands):

As of December 31, 2020

Cash equivalents:

Treasury money market funds

Short-term investments:

government securities

Asset backed securities

Corporate securities

Commercial paper

As of December 31, 2019

Cash equivalents:

Treasury money market funds

Repurchase agreements

Short-term investments:

government securities

Asset backed securities

Corporate securities

Commercial paper

Other assets:

Foreign exchange derivatives not designated as hedging instruments

The following table sets forth a summary of the changes in the fair value of the Company’s Level 3 financial instrument, contingent liability that was fully settled during the year ended December 31, 2019 (in thousands):

Consideration

Balance at December 31, 2018

Change in fair value

Settlement of contingent liability

Balance at December 31, 2019

Prior to its settlement during the year ended December 31, 2019, the Company recorded changes in fair value of the contingent consideration in general and administrative expense.

The Company did no t transfer any assets measured at fair value on a recurring basis to or from Level 1, Level 2, and Level 3 during the years ended December 31, 2020 and 2019.

Derivative Financial Instruments

In the normal course of business, the Company is exposed to the impact of foreign currency fluctuations.

The Company seeks to limit these risks by following risk management policies and procedures, including the use of derivatives.

The Company’s derivative contracts, which are not designated as hedging instruments, principally address short-term foreign currency exchange.

The estimated fair value of the derivative contracts was based upon the relative exchange rate as of the balance sheet date.

Accordingly, any gains or losses resulting from variances between this exchange rate at the contract inception date were recognized as “Other income (net)” in the consolidated statements of operations and comprehensive loss.

As of December 31, 2020, there were no unsettled forward exchange contracts to purchase foreign currency nor a corresponding liability.

Stockholders’ Equity

Private Placement

On December 24, 2019, the Company completed a private placement in a public entity (the “Private Placement” or “PIPE”) under a Securities Purchase Agreement (the “Purchase Agreement”) with certain institutional and accredited investors (the “Investors”), pursuant to which we issued and sold to the Investors 9,569,430 shares of our common stock at a price of $ 1.745 per share and pre-funded warrants (“Pre-Funded PIPE Warrants”) to purchase an aggregate of 5,780,537 shares of common stock at $ 1.744 per share (or $ 1.745 minus par value of $ .001 ).

The net proceeds after deducting placement fees and offering expenses were approximately $ 25.2 million.

We also issued accompanying warrants (the “Milestone Warrants”), with an exercise price of $ 1.48 per share, to purchase an aggregate of up to 32,577,209 additional shares of common stock and may receive up to approximately $ 48.2 million from the exercise of the Milestone Warrants prior to their expiration, totaling potential aggregate gross proceeds of up to approximately $ 75.0 million from the PIPE before deducting placement agent fees and estimated offering expenses.

The Pre-Funded PIPE Warrants are exercisable at any time after their original issuance and will not expire.

We intend to use the net proceeds from the Private Placement to fund a new clinical trial of molgramostim for the treatment of aPAP and for other general corporate purposes.

In connection with the Private Placement and the Purchase Agreement, the Company filed a Form S-3 on April 17, 2020 to register for resale the shares of common stock sold in the Private Placement and the shares of common stock underlying the Milestone Warrants and Pre-Funded PIPE Warrants described above.

The Company determined that the securities issued in the PIPE were free-standing and that the Pre-Funded PIPE Warrants and Milestone Warrants did not contain any settlement obligations that would result in liability classification under ASC 480 “Distinguishing Liability from Equity.” Since the settlement of the Pre-Funded PIPE Warrants and Milestone Warrants were initially permitted in unregistered shares, indexed to the Company’s stock, and satisfy the other criteria under ASC 815 “Derivatives and Hedging,” the Pre-Funded PIPE Warrants and Milestone Warrants qualify for equity classification and were valued using the Black-Scholes option pricing model with the following assumptions:

volatility of 90.39 %, expected term of two years , risk-free interest rate of 1.63 %, and a zero -dividend yield.

The net proceeds from the Private Placement were allocated among the instruments based upon their relative fair values at December 24, 2019 resulting in carry values of the respective instruments as follows (in thousands):

Financial instruments:

Relative Fair Value Allocation

Common Stock and Pre-Funded PIPE Warrants

Milestone Warrants

Total Net Proceeds from Private Placement

Common Stock Sales Agreement

On April 28, 2017, the Company entered into a Common Stock Sales Agreement with H.C.

Wainwright & Co., LLC (“Wainwright”), as sales agent, which was amended by Amendment No.

1 to the Common Stock Agreement (the “Amendment”) on June 29, 2018 (the “Sales Agreement”), pursuant to which the Company may offer and sell, from time to time, through Wainwright, shares of Savara’s common stock, par value $ 0.001 per share (the “Shares”), having an aggregate offering price of not more than $ 60.0 million, in addition to the $ 2.3 million in shares sold prior to the Amendment.

The Amendment was effective on July 13, 2018, the date the Company’s shelf registration statement on Form S-3, as filed with the Securities and Exchange Commission on June 29, 2018, was declared effective (“New Registration Statement”) by the Securities and Exchange Commission.

The Shares will be offered and sold pursuant to the New Registration Statement.

Subject to the terms and conditions of the Sales Agreement, Wainwright will use its commercially reasonable efforts to sell the Shares from time to time, based upon the Company’s instructions.

The Company has provided Wainwright with customary indemnification rights, and Wainwright will be entitled to a commission at a fixed commission rate equal to 3.0 % of the gross proceeds per Share sold.

The Company has no obligation to sell any of the Shares and may at any time suspend sales under the Sales Agreement or terminate the Sales Agreement .

During the years ended December 31, 2020 and 2019, the Company sold 942,825 and 4,769,726 shares of common stock under the Sales Agreement for net proceeds of approximately $ 2.3 million and $ 29.6 million, respectively.

The Company’s amended and restated certificate of incorporation, as amended in June 2018, authorizes the Company to issue 201 million shares of capital stock, consisting of 200 million shares of common stock with $ 0.001 par value per share and one million shares of preferred stock with $ 0.001 par value per share.

The following is a summary of the Company’s common stock at December 31, 2020 and 2019:

Common stock authorized

Common stock outstanding

The Company’s shares of common stock reserved for issuance as of December 31, 2020 and 2019 were as follows:

Warrants acquired in merger

Warrants converted in connection with merger

April 2017 Warrants

June 2017 Warrants

December 2018 Warrants

2017 Pre-Funded Warrants

Pre-Funded PIPE Warrants

Milestone Warrants

Stock options outstanding

Issued and nonvested RSUs

Total shares reserved

The following table summarizes the outstanding warrants for the Company’s common stock as of December 31, 2020:

Shares Underlying

Outstanding Warrants

Exercise Price

Expiration Date

February 2021

December 2028

December 2021 or 30 days after clinical milestone

Accumulated Other Comprehensive Income (Loss) Information

The components of accumulated other comprehensive income (loss) as of the dates indicated and the change during the period were (in thousands):

(in thousands)

Foreign Exchange Translation Adjustment

Unrealized Gain (Loss) on ST Investments

Total Accumulated Other Comprehensive Income (Loss)

December 31, 2018

Balance, December 31, 2019

Balance, December 31, 2020

Operating Leases

We are obligated under operating leases and subleases for office space.

On November 29, 2017, we entered into a sublease agreement for office space for our corporate headquarters in Austin, Texas.

The term of the sublease commenced on January 1, 2018 and will continue until July 31, 2021 , with annual rental payments of approximately $ 0.2 million, paid over monthly installments, subject to increases of approximately 2 % annually on the anniversary of the commencement date of the sublease term.

We lease office space in Copenhagen, Denmark under a lease with an effective date of November 1, 2018 and that expires on September 30, 2022 .

The lease in Copenhagen can be terminated by the lessee and lessor no earlier than March 31, 2022 for vacating the premises by September 30, 2022 and contains an option to extend the lease term to remain in force until it is terminated in writing by either the lessee or lessor with a six-month notice period from the first day of the month following September 30, 2022.

As of December 31, 2020, it is not reasonably certain the Company will exercise the extension options inherent in the lease.

Our annual rent is approximately $ 0.1 million, paid over monthly installments, subject to annual increases equal to the Danish consumer price index, or approximately 2 % annually.

The following is a maturity analysis of the annual undiscounted cash flows reconciled to the carrying value of the operating lease liabilities as of December 31, 2020 (in thousands):

Year ending December 31,

Total future minimum lease payments

Less imputed interest

Operating cash outflows from operating leases

Weighted-average remaining lease term (in months) - operating leases

Weighted-average discount rate - operating leases

As of December 31, 2020, the carrying value of the right-of-use assets for the operating leases was $ 0.2 million, which is reflected in “Other non-current assets,” and the carrying value of the lease liabilities for operating leases was $ 0.3 million, of which approximately $ 0.2 million related to the current portion of the lease liabilities is recorded in “Accrued expenses and other current liabilities,” and $ 0.1 million related to the non-current portion of the lease liabilities is recorded in “Other long-term liabilities.”

Risk Management

The Company maintains various forms of insurance that the Company's management believes are adequate to reduce the exposure to these risks to an acceptable level.

Employment Agreements

On December 8, 2020, the Company entered into an employment agreement with the CEO whereby the CEO is entitled to payments and benefits upon certain events.

Upon termination (i) without cause or as a result of the CEO’s disability, (ii) termination due to the CEO’s death, or (iii) the CEO’s resignation for good reason, the CEO is entitled to receive (i) continued monthly payment of base salary for 12 months from the date of termination, (ii) a lump sum payment equal to 100 % of his target bonus, (iii) a pro-rated portion of the unpaid target bonus, (iv) reimbursement for continued coverage under medical benefit plans for 12 months or until covered under a separate plan from another employer, and (v) the immediate and full vesting of outstanding nonvested Company equity awards.

Additionally, all of the CEO’s outstanding stock options will be exercisable through the earlier of (x) the 12-month anniversary of the termination date or (y) the original expiration date.

Upon a termination other than for cause, death or disability or resignation for good reason within three months following a change in control, the CEO is entitled to receive (i) a lump sum payment of an amount equal to 24 months of base salary, plus one-hundred percent of the unpaid target bonus, plus a pro-rated portion of any unpaid bonus earned during the relevant performance period, (ii) reimbursement for continued coverage under medical benefit plans for 24 months or until covered under a separate plan from another employer, and (iii) the immediate and full vesting of outstanding nonvested Company equity awards.

Additionally, all of the CEO’s outstanding stock options will be exercisable through the earlier of (x) the 24-month anniversary of the termination date or (y) the original expiration date.

Each of the Company’s Chief Financial Officer (“CFO”) and Chief Medical Officer (“CMO”) is entitled to payments and benefits if the CFO or CMO, respectively, is terminated without cause or resigns for good reason.

Upon termination without cause, and not as a result of death or disability or resignation for good reason, the CFO or CMO is entitled to receive a payment of base salary for 12 months and a pro-rated portion of the unpaid bonus, and is entitled to reimbursement for continued coverage under medical benefit plans for six months or until covered under a separate plan from another employer.

Upon a termination other than for cause or resignation for good reason within 12 months following a change in control, the CFO or CMO is entitled to receive a payment of base salary for 18 months and one-hundred percent of the unpaid bonus and be entitled to a payment equal to the amount required to continue coverage under medical benefit plans for 12 months and will also be entitled to full acceleration of outstanding nonvested options at the time of such termination.

Related Parties

Pursuant to the Private Placement on December 24, 2019 (Note 11), Bain Capital Life Science Investors, LLC and affiliates (“Bain”), acquired 4,571,139 shares of the Company’s common stock, 3,615,498 Pre-Funded PIPE Warrants, and 17,374,517 Milestone Warrants and has a right to designate a member of the Company’s board of directors.

As an investor with the right to designate a member of the Company’s board of directors, Bain has significant influence over the Company and is thereby considered a related party as of December 31, 2020.

Stock-Based Compensation

Equity Incentive Plans

2008 Stock Option Plan

The Company adopted the Savara Inc.

Stock Option Plan (the “2008 Plan”), pursuant to which the Company had reserved shares for issuance to employees, directors, and consultants.

The 2008 Plan includes (i) the option grant program providing for both incentive and non-qualified stock options, as defined by the Internal Revenue Code, and (ii) the stock issuance program providing for the issuance of awards that are valued based upon common stock, including restricted stock, dividend equivalents, stock appreciation rights, phantom stock, and performance units.

The 2008 Plan also allows eligible persons to purchase shares of common stock at an amount determined by the plan administrator.

Upon a participant’s termination, the Company retains the right to repurchase nonvested shares issued in conjunction with the stock issuance program at the fair market value per share as of the date of termination.

The Company had previously issued incentive and non-qualified options and restricted stock to employees and non-employees under the 2008 Plan.

The terms of the stock options, including the exercise price per share and vesting provisions, were determined by the board of directors.

Stock options were granted at exercise prices not less than the estimated fair market value of the Company’s common stock at the date of grant based upon objective and subjective factors including:

third-party valuations, preferred stock transactions with third parties, current operating and financial performance, management estimates and future expectations.

The Company no longer issues stock-based awards under the 2008 Plan.

2015 Omnibus Incentive Option Plan

The Company operates the 2015 Omnibus Incentive Plan (the “2015 Plan”), as amended and restated with approval by our stockholders in June 2018 and May 2020.

The 2015 Plan provides for the grant of incentive and non-statutory stock options, as well as share appreciation rights, restricted shares, restricted stock units, performance units, shares and other stock-based awards.

Share-based awards are subject to terms and conditions established by our board of directors or the compensation committee of our board of directors.

As of December 31, 2020, the number of shares of our common stock available for grant under the 2015 Plan was 1,677,046 shares.

Shares of common stock that are subject to awards granted under the 2015 Plan shall be counted against the shares available for issuance under this plan as one share for each share subject to a stock option or stock appreciation right and as 1.34 shares for each share subject to an award other than a stock option or a stock appreciation right such as a restricted stock unit (“RSU”).

If any shares of common stock subject to an award granted under any of our stockholder-approved, equity-based incentive plans are forfeited, or an award expires or is settled for cash pursuant to the terms of an award, the shares subject to the award may be used again for awards under the 2015 Plan to the extent of the forfeiture, expiration or cash settlement.

The shares of common stock will be added back as one share for every share of common stock if the shares were subject to a stock option or stock appreciation right, and as 1.34 shares for every share of common stock if the shares were subject to an award other than a stock option or stock appreciation right.

Under the 2015 Plan, the purchase price of shares of common stock covered by a stock option cannot be less than 100 % of the fair market value of the common stock on the date the stock option is granted.

Fair market value of the common stock is generally equal to the closing price for the common stock on the principal securities exchange on which the common stock is traded on the date the stock option is granted (or if there was no closing price on that date, on the last preceding date on which a closing price was reported).

Inducement Awards

The Company has granted equity awards under inducement grants filed in accordance with Nasdaq Listing Rule 5635(c)(4) exclusively to the Company’s CMO as an inducement for the CMO to enter into employment with the Company.

Under both the 2008 Plan and 2015 Plan, stock option and restricted stock unit grants typically vest quarterly over three to four years and expire ten years from the grant date, and restricted stock grants vest on a quarterly basis over four years and expire ten years from the grant date.

Stock Options and Restricted Stock Units

The Company values stock options using the Black-Scholes-Merton option pricing model, which requires the input of subjective assumptions, including the risk-free interest rate, expected life, expected stock price volatility, and dividend yield.

The risk-free interest rate assumption is based upon observed interest rates for constant maturity U.S.

Treasury securities consistent with the expected term of the Company’s employee stock options.

The expected life represents the period of time the stock options are expected to be outstanding and is based on the simplified method.

The Company uses the simplified method due to the lack of sufficient historical exercise data to provide a reasonable basis upon which to otherwise estimate the expected life of the stock options.

Expected volatility is based on historical volatilities for publicly traded stock of comparable companies over the estimated expected life of the stock options.

The Company assumes no dividend yield because dividends are not expected to be paid in the future, consistent with the Company’s history of not paying dividends.

The valuation of stock options is also impacted by the valuation of common stock.

Stock option awards generally have ten-year contractual terms and vest over four years for issuances to employees based on continuous service;

however, the 2015 Plan allows for other vesting periods.

Restricted stock units are valued at the closing market price of the Company’s common stock on the date of grant.

Fair Value Assumptions for 2015 Plan

The following table summarizes the assumptions used for estimating the fair value of stock options granted to employees for the years ended December 31, 2020 and 2019:

Risk-free interest rate

1.39% - 2.60%

Expected term (years)

Expected volatility

78.9% - 96.4%

79.9% - 91.3%

Dividend yield

The following table summarizes the assumptions used for estimating the fair value of stock options granted to non-employees for the years ended December 31, 2020 and 2019:

Risk-free interest rate

1.62% - 1.92%

Expected term (years)

Expected volatility

83.9% - 91.3%

Dividend yield

Stock-Based Award Activity

The following tables provide a summary for the 2008 Plan and 2015 Plan of stock option activity for employees and non-employees, and RSU activity for the year ended December 31, 2020:

Stock Options:

Shares Underlying Option Awards

Weighted-Average Exercise Price

Weighted-Average Remaining Contractual Life

Aggregate Intrinsic Value (in 000's)

Outstanding at December 31, 2019

Expired/cancelled/forfeited

Outstanding at December 31, 2020

Options exercisable at December 31, 2020

Vested and expected to vest at December 31, 2020

Option Awards

Weighted-Average Grant Date Fair Value

Outstanding at December 31, 2019

Expired/cancelled/forfeited

Outstanding at December 31, 2020

The weighted-average grant date fair values for the Company’s stock options granted during the years ended December 31, 2020 and 2019 were $ 0.95 per share and $ 2.30 per share, respectively.

The total compensation cost related to nonvested stock options not yet recognized as of December 31, 2020 was $ 6.5 million, which will be recognized over a weighted-average period of approximately 2.3 years.

The total compensation cost related to unvested RSUs not yet recognized as of December 31, 2020 was $ 0.7 million, which will be recognized over a weighted-average period of 1.2 years.

During the years ended December 31, 2020 and 2019, the Company granted options to purchase a total of 0 and 60,000 shares of common stock to non-employees, respectively, under the 2015 Plan.

The Company recorded a minimal amount of stock-based compensation expense for options issued to non-employees for the years ended December 31, 2020 and 2019, respectively.

As of December 31, 2020, options to purchase 39,376 shares were held by non-employees and were vested and outstanding.

Stock-Based Compensation and Stock Option Modification

Effective September 11, 2020, the Company’s Chief Executive Officer (“CEO”) who also served as Chairman of the Board of Directors (“Chairman”) as well as the Chief Business Officer (together, the “Former Executives”) resigned, and Matthew Pauls was appointed as the Company’s Interim Chief Executive Officer (“Interim CEO”) and Chairman and subsequently confirmed as CEO.

As part of the termination of employment of the Former Executives, certain supplementary modifications to the Former Executives’ vested and nonvested stock option awards including additional acceleration of nonvested shares, voluntary forfeiture of certain stock option awards, and the extension of the post-termination exercise period of certain stock option awards.

During the year ended December 31, 2020, the Company recorded a one-time, noncash incremental compensation expense net of the required reversal of previously recognized compensation attributed to nonvested shares in the amount of $ 0.8 million which is included in “General and administrative expenses” related to these stock option award modifications.

The Company accounted for the resulting net incremental stock option award modification compensation under ASC Topic 718, Compensation – “Stock Compensation.”

Stock-based compensation expense is included in the following line items in the accompanying statements of operations and comprehensive loss for the years ended December 31, 2020 and 2019 (in thousands):

Year ended December 31,

Research and development

General and administrative

Total stock-based compensation

The components of loss before income taxes for the years ended December 31, 2020 and 2019 are as follows (in thousands):

The Company did no t record a federal tax benefit or expense for the year ended December 31, 2020.

The Company recorded no state provision for income taxes for the years ended December 31, 2020 and 2019 due to revenues below the minimum tax threshold.

The components of the benefit for income taxes are as follows for the years ended December 31, 2020 and 2019 (in thousands):

Total current

Total deferred

Total income tax expense (benefit)

A reconciliation of the expected income tax results computed using the federal statutory income tax rate to the Company’s effective income tax rate is as follows for the years ended December 31, 2020 and 2019 (in thousands):

Income tax benefit computed at federal statutory tax rate

Change in valuation allowance

Orphan drug & research credits generated

Orphan drug & research credit expense disallowance

Impact of foreign operations

Goodwill impairment

Other permanent differences

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.

The Company has established a valuation allowance due to uncertainties regarding the realization of deferred tax assets based upon the Company’s lack of earnings history.

During the years ended December 31, 2020 and 2019, the valuation allowance increased by $ 14.3 million and $ 12.8 million, respectively.

Significant components of the Company’s deferred tax assets and liabilities are as follows (in thousands):

Deferred tax liabilities:

Prepaid assets

Intangible assets

Total deferred tax liabilities

Deferred tax assets:

Net operating loss carryforwards

Intangible assets

Credit carryforwards

Accrued liabilities & other

Total deferred tax assets

Valuation allowance

Net deferred taxes

As of December 31, 2020 and 2019, the Company had foreign net operating loss (“NOL”) carryforwards of approximately $ 54.8 million and $ 40.3 million, respectively, which have an indefinite carryforward period.

As of December 31, 2020 and 2019, the Company had NOL’s for federal income tax purposes of approximately $ 123.9 million and $ 103.8 million, respectively.

The federal NOL carryforwards begin to expire in 2027 , with $ 70.7 million not having an expiration date.

As of December 31, 2020 and 2019, the Company also had available research and orphan drug tax credit carryforwards for federal income tax purposes of approximately $ 17.2 million and $ 15.3 million, respectively.

If not utilized, these carryforwards expire at various dates beginning in 2028 .

As of December 31, 2020 and 2019, the Company had state research and development tax credit carryforwards of approximately $ 0.5 million and $ 0.4 million, respectively, which will begin to expire in 2034 if not utilized.

Utilization of the NOL and tax credit carryforwards may be subject to an annual limitation due to ownership change limitations that have occurred previously or that could occur in the future, as provided by Section 382 of the Internal Revenue Code of 1986 (“Section 382”), as well as similar state provisions.

Ownership changes may limit the amount of NOL carryforwards and tax credit carryforwards that can be utilized annually to offset future taxable income and tax, respectively.

In general, an ownership change, as defined by Section 382, results from transactions that increase the ownership of 5 % shareholders in the stock of a corporation by more than 50 percentage points in the aggregate over a three-year period.

The Company has initiated a study to determine whether any ownership change has occurred since the Company’s formation, and expects to complete the study in the first half of 2021.

However, the Company believes that it has experienced at least two ownership changes in the past and that it may experience additional ownership changes as a result of subsequent shifts in its stock ownership.

Should there be an ownership change that has occurred or will occur, the Company’s ability to utilize existing carryforwards could be substantially restricted and may result in the expiration of such carryforwards prior to utilization.

The Company applies the accounting guidance in ASC 740 “Income Taxes” related to accounting for uncertainty in income taxes.

The Company’s reserves related to taxes are based on a determination of whether, and how much of, a tax benefit taken by the Company in its tax filings or positions is more likely than not to be realized following resolution of any potential contingencies present related to the tax benefit.

As of December 31, 2020 and 2019, the Company had no unrecognized tax benefits.

During the years ended December 31, 2020 and 2019, the Company had no interest and penalties related to income taxes.

The Company files income tax returns in the U.S.

federal, state, and foreign jurisdictions.

As of December 31, 2020, the statute of limitations for assessment by the Internal Revenue Service (“IRS”) is open for the 2017 and subsequent tax years, although carryforward attributes that were generated for tax years prior to then may still be adjusted upon examination by the IRS if they either have been, or will be, used in a future period.

The 2016 and subsequent tax years remain open and subject to examination by the state taxing authorities.

The 2017 and subsequent tax years remain open and subject to examination by the foreign taxing authorities.

There are currently no federal, state, or foreign income tax audits in progress.

Net Loss per Share

Basic net loss per share is computed by dividing the net loss by the weighted-average number of common shares outstanding.

Diluted net loss per share is computed similarly to basic net loss per share except the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive.

Diluted net loss per share is the same as basic net loss per common share since the effects of potentially dilutive securities are antidilutive.

As of December 31, 2020 and 2019, potentially dilutive securities include:

Year ended December 31,

Awards under equity incentive plan

Nonvested restricted shares and restricted stock units

Warrants to purchase common stock

The following table calculates basic earnings per share of common stock and diluted earnings per share of common stock for the years ended December 31, 2020 and 2019 (in thousands, except share and per share amounts):

Year ended December 31,

Net loss attributable to common stockholders

Undistributed earnings and net loss attributable to

common stockholders, basic and diluted

Weighted-average common shares outstanding, basic

Basic and diluted EPS

Subsequent Events

Termination of Manufacturing Agreement

On December 10, 2020, the Company announced that the Phase 3 trial of vancomycin hydrochloride inhalation powder in people living with cystic fibrosis who have MRSA lung infection did not meet the primary endpoint.

Subsequently, on January 7, 2021 the Company issued a termination notice to GlaxoSmithKline Trading Services Limited (“GSK”) , who manufactures the drug product from bulk vancomycin powder.

On January 26, 2021, the Company and GSK entered a change order for termination costs associated with the closeout and winddown of vancomycin activities.

Termination costs were less than $ 1 million.

Loan Agreement with Silicon Valley Bank

On February 25, 2021, SVB agreed to delay the existing requirement for the Company to have an ongoing (first patient dosed) Phase 3 clinical trial for molgramostim for the treatment of aPAP from March 31, 2021 to June 30, 2021.

If the first patient dosed does not occur by June 30, 2021, then (i) a payment equal to three months of principal that was deferred between April 1, 2021 and June 1, 2021 will be collected on July 1, 2021 (calculated based on a 24-month amortization) and (ii) the remaining balance will begin amortizing July 1, 2021 over the remaining 21 months of the loan.

As part of this accommodation, the end of term charge of the Loan Agreement increased from 6.0 % to 6.2 %.

Parexel Agreement

On March 5, 2021, the Company entered into a Master Services Agreement (“MSA”) and executed a work order with Parexel International (IRL) Limited (“Parexel”) pursuant to which Parexel will provide contract research services related to support IMPALA 2 clinical trial development activities.

The MSA has an initial term of five years .

Under the work order, the Company will pay Parexel service fees and pass-through expenses estimated to be approximately $ 31 million over the course of the IMPALA 2 clinical trial.

Changes in and Disagreements with Accou ntants on Accounting and Financial Disclosure.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 5. Market for Registrant’s Common Equity