SAVARA INC. (NASDAQ:SVRA) Files An 8-K Other Events

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SAVARA INC. (NASDAQ:SVRA) Files An 8-K Other Events

ME Staff 8-k

June 1, 2017

SAVARA INC. (NASDAQ:SVRA) Files An 8-K Other Events

Item8.01

Other Events.

Clinical Development of Molgradex

Phase3

Savara is currently conducting a Phase 3 clinical study on
Molgradex in Europe and Japan in autoimmune pulmonary alveolar
proteinosis, or PAP, patients. Based on guidance received from
the U.S. Food and Drug Administration, or FDA, as well as
scientific advice received from the European Medicines Agency, or
EMA, Savara believes the study has the potential to be accepted
as the sole pivotal study in support of a BLA submission in the
United States, and a marketing authorization application in the
European Union. The aim of this randomized, double-blind,
placebo-controlled study is to compare efficacy and safety of
Molgradex with placebo in up to 90 PAP patients. Enrollment of
the study is expected to be completed by the first quarter of
2018, with top line data readout expected in the fourth quarter
of 2018.

The Phase 3 clinical study on Molgradex is enrolling patients
diagnosed with autoimmune PAP and fulfilling all other entry
criteria. These patients are randomized to receive double-blind
treatment for up to 24 weeks in one of three treatment arms: 1)
Molgradex 300 g administered once daily, 2) Molgradex 300 g and
matching placebo administered daily in 7-day intermittent cycles
of each, or 3) inhaled placebo administered once daily. The
placebo-controlled period is followed by an open label follow-up
period of 24-48 weeks. The study is being conducted at multiple
sites in the European Union, Russia, Israel and Japan, with plans
to open new study sites in certain other countries, including the
United States. The primary endpoint of the study is the absolute
change from baseline of arterial-alveolar oxygen gradient
((A-a)DO2) after 24 weeks of treatment. This endpoint is a
measure of the patients oxygenation status, and the endpoint
value is expected to decrease as the physical obstacle of gas
exchange is reduced by clearance of excess surfactant from the
lungs. In addition, based on FDA guidance recently received by
Savara, the FDA will focus its review on three key secondary
endpoints that will be assessed for improvement in clinical
symptoms and function, including six-minute walk distance (6MWD),
St. Georges respiratory questionnaire (SGRQ), and the time to
whole lung lavage.

Based on the sample size calculation for the study, 42 evaluable
patients (14 in each treatment group) are required to be
randomized to have 90% power to detect a difference of 10 mmHg in
(A-a)DO _{between the two active

arms combined and placebo, using a significance level of 0.01. To

account for the FDAs review of the key secondary endpoints, a

sample size of 30 patients per treatment group will be enrolled

to achieve approximately 90% power to detect a difference of 50

meters in the 6MWD between each active arm and placebo, and a

difference of ten points in the SGRQ between each active arm and

placebo, each active arm analyzed sequentially using a

significance level of approximately 0.02, after correction for

multiplicity with an appropriate method for correlated

endpoints.}

_{A data safety monitoring

board, or DSMB, provides safety oversight in the Phase 3 study.

Following its first two meetings, no concerning safety issues

were identified, and the DSMB has endorsed continuation of the

study as planned.}

₁

_{Clinical

Development of AeroVanc}

_{Phase

3}

_{Savara intends to initiate a

Phase 3 clinical study designed to demonstrate the safety and

efficacy of AeroVanc in cystic fibrosis, or CF, patients with

persistent methicillin-resistant Staphylococcus aurens,

or MRSA, lung infection. The plan is to initiate this trial in

the third quarter of 2017. The study is planned to be conducted

primarily in the United States and Canada.}

_{Savara has received detailed

guidance from the FDA on the design of the study, and believes

that the planned study is in accordance with the FDAs

requirements for a sole pivotal study to be used in an NDA

submission. The study has also been planned in consultation with

the Cystic Fibrosis Foundations Therapeutic Development Network.

The Phase 3 study is designed to detect whether the

administration of AeroVanc results in a significant improvement

in lung function. The study will assess a 32 mg dose administered

twice a day for three on/off cycles of 28 days. The planned

primary efficacy endpoint is absolute change from baseline in FEV

_{percent predicted at Week 4

and Week 20, a commonly used measure of lung function. Secondary

efficacy endpoints include the time to use of other antibiotics

for pulmonary infection, FEV _{improvement (relative change, number of

response cycles) and a respiratory symptoms

diary.}}}

_{The planned Phase 3 study is a

randomized (1:1), double-blind, placebo-controlled study of

AeroVanc in approximately 200 CF patients with persistent MRSA

lung infection. The plan is to enrich the study with younger

patients, by enrolling 75% of the subjects between the ages of 6

and 21 years. This was the population most responsive to

treatment in the Phase 2 study, and will form the primary

analysis population of the study. The duration of the study drug

(AeroVanc or placebo) administration will be three cycles of 28

days on drug and 28 days off drug, during which time the primary

efficacy endpoint will be measured and assessed. Following the

efficacy study period, subjects will transition into another

three cycles (28 days on treatment, 28 days off treatment per

cycle) of open label AeroVanc use to provide more information on

long-term safety.}

_{The planned primary efficacy

endpoint of the study is the mean absolute change from baseline

in FEV _{percent predicted. In

accordance with guidance from the FDA, the endpoint will be

analyzed sequentially at Week 4 (first treatment cycle), and at

Week 20 (third treatment cycle). Both time points will be tested

at a statistical significance level of p = 0.05 due to the

sequential nature of the analysis. Savara believes that a

statistically significant improvement at Week 20 would provide

support for a chronic treatment label, whereas improvement at

Week 4 only may result in a more restricted label. Approval in

any form is subject to the positive evaluation of the clinical

meaningfulness of the treatment effect, judged by the review of

all data, including safety data, and the outcome of key secondary

endpoints, such as time to use of other antibiotics.}}

₂

_{In the single-cycle Phase 2

study, with missing data imputed using conservative rules adopted

by the FDA, a difference in the mean absolute change in

FEV_{percent predicted of 4.3%

was observed between the treatment arms in subjects below 21

years of age. Based on the observed treatment effect size and

variability, a sample size of 45 subjects per arm would provide

90% power to detect a statistically significant difference at an

alpha level of 0.05. To account for a potential loss of power

caused by premature discontinuations in a three-cycle study, a

sample size of 100 subjects per arm will be enrolled.}}

_{Selection of the dose for the

study was made based on the Phase 2 study in CF patients. In that

study, administration of the 32 mg bid dose resulted in sputum

trough vancomycin concentrations that were on average more than

100-fold above the observed minimum inhibitory concentration

(MIC90) value, suggesting that the concentrations reached after

repeated administration of the 32 mg bid dose are likely to be

sufficient for effective management of MRSA infection. In terms

of safety and tolerability, the 32 mg AeroVanc dose did not

appear significantly different from placebo, and produced

encouraging trends of efficacy in all key endpoints in subjects

below 21 years of age. In contrast, the higher AeroVanc dose of

64 mg bid was not as well tolerated in the older subjects (above

21 years of age), resulting in an increased number of premature

discontinuations of the study drug treatment in this

subgroup.}

_{After the completion of the

Phase 3 study, Savara intends to submit an NDA under the

505(b)(2) regulatory pathway. In addition to being designated an

Orphan Drug Product and QIDP, AeroVanc has been designated a Fast

Track development program by the FDA.}

_{Clinical

Development of Aironite

We have supported, or currently are supporting, four

investigator-sponsored Phase 2 clinical studies of Aironite (also

known as AIR001) in patients with heart failure with preserved

ejection fraction (HFpEF) being conducted at prominent research

institutions in the United States.}

_{Phase 2

INDIE-HFpEF Study}

_{In 2016, Aironite was selected

by the Heart Failure Clinical Research Network, or HFN, for

evaluation in a multicenter, randomized, double-blind,

placebo-controlled crossover Phase 2 study in approximately 100

patients with HFpEF known as the Inorganic Nitrite Delivery to

Improve Exercise Capacity in HFpEF study, or the INDIE-HFpEF

study. The study began in the third quarter of 2016 and patient

enrollment is ongoing. Results are expected in the first half of

2018. The study is being conducted with significant support from

a grant awarded by the National Heart, Lung, and Blood Institute,

part of the National Institutes of Health. We are providing test

materials (Aironite and placebo), drug delivery devices

(nebulizers), regulatory and technical support, and some

additional financial support.}

_{The study is a randomized,

double-blind, placebo-controlled crossover study to evaluate the

effect of AIR001 on peak exercise capacity as assessed by

cardiopulmonary exercise testing, or CPET.Approximately 100

patients with a diagnosis of HFpEF will be enrolled across

approximately 20 clinical centers in the United States that are

part of the HFN.The primary efficacy endpoint is the peak oxygen

consumption (VO2) after four weeks of treatment with Aironite or

placebo as assessed by CPET performed at peak drug levels.

Secondary objectives include (i) submaximal activity tolerance

chronically, (ii) quality of life, (iii) chronic filling

pressures as assessed by echocardiography and natriuretic peptide

levels, and/or (iv) ventilator efficiency or submaximal exercise

capacity at peak drug levels, and evaluation of the safety and

tolerability of Aironite.}

_{Phase 2

INABLE-TRAINING Study}

_{Enrollment is ongoing in a

Phase 2 clinical study of Aironite in patients with HFpEF known

as the Inorganic Nitrite to Amplify the Benefits and Tolerability

of Exercise Training study, or the INABLE-TRAINING study. This

randomized, blinded, placebo-controlled, two-arm, parallel-group

study in approximately 68 patients with HFpEF is evaluating

Aironites potential to improve the clinical responses to and

tolerability of exercise training, or ET, in individuals with

HFpEF. The primary endpoint of the study is the change in

exercise capacity as measured by peak oxygen consumption

(baseline to 12 weeks).}

_{All study subjects will

undergo 12 weeks of ET. Subjects will be randomized to receive

Aironite three times daily or nebulized inhaled placebo (sodium

chloride) three times daily during the study period and will wear

accelerometry devices to track daily physical activity at home.

After 12 weeks of ET as part of standard cardiac rehabilitation,

study subjects will repeat the assessment of cardiovascular

function and exercise capacity as performed at study entry to

assess efficacy at a final visit.}

_{The INABLE-TRAINING study has

2 aims. First, to determine whether treatment with Aironite in

addition to ET for 12 weeks improves exercise capacity and

hemodynamic reserve in HFpEF. Expired gas analysis, inert gas

(C2H2) rebreathe, and echocardiography will be performed during

rest and exercise to measure oxygen consumption (VO2), CO, and

hemodynamics before and after completion of 12 weeks of ET with

inhaled NO2- vs ET with inhaled placebo. Second, to determine

whether treatment with Aironite in addition to ET for 12 weeks

increases daily activity levels and quality of life, or QOL, and

reduces symptoms of effort intolerance during ET. Tolerability of

ET will be assessed by Borg perceived effort and dyspnea scores.

Large and small vessel endothelial function (brachial and digital

arteries) and QOL will also be assessed. Secondary endpoints

include cardiac output reserve, peak exercise workload, rest and

exercise hemodynamics assessed by echocardiography, Borg dyspnea

and fatigue scores recorded during ET, endothelial function

assessed by tonometry and brachial artery flow mediated dilation,

and QOL assessed by the Kansas City Cardiomyopathy

Questionnaire}

_{Phase 1/2 Aironite

Study in Cystic Fibrosis Patients}

_{An investigator-sponsored

open-label Phase 1/2 study of Aironite in adults with CF and

airway infection with Pseudomonas aeruginosa (P.

aeruginosa) was initiated in January 2017 and is being

conducted at a prestigious research institution with funding from

a grant award from a non-profit organization. The study will

assess safety of Aironite administered in a dose escalation

manner. The study also aims to explore the effects of Aironite on

measures of lung function, exhaled airway nitric oxide, and

reduction in bacterial burden. Sodium nitrite has demonstrated

in vitro antimicrobial activity against P.

aeruginosa and other airway pathogens, as well as the

ability to disperse biofilms. If supportive, we believe data from

this Phase 1/2 study would facilitate the design of a potential

Phase 2 program to establish Aironites utility as an

antimicrobial agent for P. aeruginosa and sensitizer to

standard antibiotic therapies in CF patients.}

₃

_{Government

Regulation}

_{We believe our AeroVanc

product candidate will be regulated by the FDA as a drug and will

require the submission and approval of a New Drug Application, or

NDA, and our Molgradex product candidate will be regulated by the

FDA as a biologic and will require the submission and approval of

a Biologic License Application, or BLA.}

_{The FDA and other regulatory

authorities at federal, state, and local levels, as well as in

foreign countries, extensively regulate, among other things, the

research, development, testing, manufacture, quality control,

import, export, safety, effectiveness, labeling, packaging,

storage, distribution, record keeping, approval, advertising,

promotion, marketing, post-approval monitoring, and post-approval

reporting of biologics and drugs, such as those Savara is

developing. Savara, along with third-party contractors, will be

required to navigate the various preclinical, clinical and

commercial approval requirements of the governing regulatory

agencies of the countries in which it wishes to conduct studies

or seek approval or licensure of its product candidates. The

process of obtaining regulatory approvals and the subsequent

compliance with appropriate federal, state, local, and foreign

statutes and regulations require the expenditure of substantial

time and financial resources.}

_{BLA/NDA Approval

Process}

_{The process required by the

FDA before a biologic or drug product candidate may be marketed

in the United States generally involves the following:}

completion of preclinical laboratory tests and animal studies
performed in accordance with the FDAs current Good Laboratory
Practices, or GLP, regulation;

submission to the FDA of an IND, which must become effective
before clinical trials may begin and must be updated annually
or when significant changes are made;

approval by an independent Institutional Review Board, or
IRB, or ethics committee for each clinical site before a
clinical trial can begin;

performance of adequate and well-controlled human clinical
trials to establish the safety, purity and potency of the
proposed product candidate for its intended purpose;

preparation of and submission to the FDA of a Biologic
License Application, or BLA or New Drug Application, or NDA,
after completion of all required clinical trials;

a determination by the FDA within 60 days of its receipt of a
BLA or NDA to file the application for review;

satisfactory completion of an FDA Advisory Committee review,
if applicable;

satisfactory completion of an FDA pre-approval inspection of
the manufacturing facility or facilities at which the
proposed product is produced to assess compliance with
current Good Manufacturing Practices, or cGMP, and to assure
that the facilities, methods and controls are adequate to
preserve the products continued safety, purity and potency,
and of selected clinical investigational sites to assess
compliance with current Good Clinical Practices, or cGCPs;
and

FDA review and approval of the BLA or NDA to permit
commercial marketing of the product for particular
indications for use in the United States, which must be
updated annually and when significant changes are made.

_{The testing and approval

process requires substantial time, effort and financial

resources, and Savara cannot be certain that any approvals for

its product candidates will be granted on a timely basis, if at

all. Prior to beginning the first clinical trial with a product

candidate, Savara must submit an IND to the FDA. An IND is a

request for authorization from the FDA to administer an

investigational new drug product to humans. The central focus of

an IND submission is on the general investigational plan and the

protocol(s) for clinical studies. The IND also includes results

of animal and in vitro studies assessing the toxicology,

pharmacokinetics, pharmacology, and pharmacodynamic

characteristics of the product; chemistry, manufacturing, and

controls information; and any available human data or literature

to support the}

₄

_{use of the investigational

product. An IND must become effective before human clinical

trials may begin. The IND automatically becomes effective 30 days

after receipt by the FDA, unless the FDA, within the 30-day time

period, raises safety concerns or questions about the proposed

clinical trial. In such a case, the IND may be placed on clinical

hold and the IND sponsor and the FDA must resolve any outstanding

concerns or questions before the clinical trial can begin.

Submission of an IND therefore may or may not result in FDA

authorization to begin a clinical trial.}

_{Clinical trials involve the

administration of the investigational product to human subjects

under the supervision of qualified investigators in accordance

with cGCPs, which include the requirement that all research

subjects provide their informed consent for their participation

in any clinical study. Clinical trials are conducted under

protocols detailing, among other things, the objectives of the

study, the parameters to be used in monitoring safety and the

effectiveness criteria to be evaluated. A separate submission to

the existing IND must be made for each successive clinical trial

conducted during product development and for any subsequent

protocol amendments. Furthermore, an independent Institutional

Review Board, or IRB, for each site proposing to conduct the

clinical trial must review and approve the plan for any clinical

trial and its informed consent form before the clinical trial

begins at that site, and must monitor the study until completed.

Regulatory authorities, the IRB or the sponsor may suspend a

clinical trial at any time on various grounds, including a

finding that the subjects are being exposed to an unacceptable

health risk or that the trial is unlikely to meet its stated

objectives. Some studies also include oversight by an independent

group of qualified experts organized by the clinical study

sponsor, known as a data safety monitoring board, which provides

authorization for whether or not a study may move forward at

designated check points based on access to certain data from the

study and may halt the clinical trial if it determines that there

is an unacceptable safety risk for subjects or other grounds,

such as no demonstration of efficacy. There are also requirements

governing the reporting of ongoing clinical studies and clinical

study results to public registries.}

_{Clinical trials typically are

conducted in three or four sequential phases, but the phases my

overlap or be combined.}

Phase 1. The drug product is initially introduced
into healthy human subjects and tested for safety. In the
case of some products for severe or life-threatening
diseases, the initial human testing is often conducted in
patients.

Phase 2. The drug product is evaluated in a limited
patient population to identify possible adverse effects and
safety risks, to preliminarily evaluate the efficacy of the
product for specific targeted diseases and to determine
dosage tolerance, optimal dosage and dosing schedule.

Phase 3. Clinical trials are undertaken to further
evaluate dosage, clinical efficacy, potency, and safety in an
expanded patient population at geographically dispersed
clinical trial sites. These clinical trials are intended to
establish the overall risk to benefit ratio of the product
and provide an adequate basis for product labeling.

Phase 4. In some cases, the FDA may require, or
companies may voluntarily pursue, additional clinical trials
after a product is approved to gain more information about
the product. These so-called Phase 4 studies
may be required as a condition to approval of the BLA or
NDA.

_{Phase 1, Phase 2 and Phase 3

testing may not be completed successfully within a specified

period, if at all, and there can be no assurance that the data

collected will support FDA approval or licensure of the product.

Concurrent with clinical trials, companies may complete

additional animal studies and develop additional information

about the drug characteristics of the product candidate, and must

finalize a process for manufacturing the product in commercial

quantities in accordance with cGMP requirements. The

manufacturing process must be capable of consistently producing

quality batches of the product candidate. Additionally,

appropriate packaging must be selected and tested and stability

studies must be conducted to demonstrate that the product

candidate does not undergo unacceptable deterioration over its

shelf life. Assuming successful completion of all required

testing in accordance with all applicable regulatory

requirements, the results of product development, nonclinical

studies and clinical trials are submitted to the FDA as part of a

BLA or NDA requesting approval to market the product for one or

more indications. The BLA or NDA must include all relevant data

available from pertinent preclinical and clinical studies,

including negative or ambiguous results as well as positive

findings, together with detailed information relating to the

products chemistry, manufacturing, controls, and proposed

labeling, among other things. Data can come from

company-sponsored clinical studies intended to test the safety

and effectiveness of a use of the product, or from a number of

alternative sources, including studies initiated by

investigators. The submission of a BLA or NDA requires payment of

a substantial User Fee to FDA, and the sponsor of an approved NDA

is also subject to annual product and establishment user fees.

These fees are typically increased annually. A waiver of user

fees may be obtained under certain limited circumstances.}

₅

_{Within 60 days following

submission of the application, the FDA reviews the BLA or NDA to

determine if it is substantially complete before the agency

accepts it for filing. The FDA may refuse to file any BLA or NDA

that it deems incomplete or not properly reviewable at the time

of submission and may request additional information. In this

event, the BLA or NDA must be resubmitted with the additional

information. Once a BLA or NDA has been filed, the FDAs goal is

to review the application within ten months after it accepts the

application for filing, or, if the application relates to an

unmet medical need in a serious or life-threatening indication,

six months after the FDA accepts the application for filing. The

review process is often significantly extended by FDA requests

for additional information or clarification. The FDA reviews a

BLA or NDA to determine, among other things, whether a product is

safe and effective for the indication being pursued, and the

facility in which it is manufactured, processed, packed, or held

meets standards designed to assure the products continued safety

and effectiveness. The FDA may convene an advisory committee to

provide clinical insight on application review questions. Before

approving a BLA or NDA, the FDA will typically inspect the

facility or facilities where the product is manufactured. The FDA

will not approve an application unless it determines that the

manufacturing processes and facilities are in compliance with

cGMP requirements and adequate to assure consistent production of

the product within required specifications. Additionally, before

approving a BLA or NDA, the FDA will typically inspect one or

more clinical sites to assure compliance with cGCP. If the FDA

determines that the application, manufacturing process or

manufacturing facilities are not acceptable, it will outline the

deficiencies in the submission and often will request additional

testing or information. Notwithstanding the submission of any

requested additional information, the FDA ultimately may decide

that the application does not satisfy the regulatory criteria for

approval.}

_{The testing and approval

process requires substantial time, effort and financial

resources, and each may take several years to complete. The FDA

may not grant approval on a timely basis, or at all, and Savara

may encounter difficulties or unanticipated costs in its efforts

to secure necessary governmental approvals, which could delay or

preclude us from marketing its products. After the FDA evaluates

a BLA or NDA and conducts inspections of manufacturing facilities

where the investigational product and/or its drug substance will

be produced, the FDA may issue an approval letter or a Complete

Response Letter. An approval letter authorizes commercial

marketing of the product with specific prescribing information

for specific indications. A Complete Response Letter indicates

that the review cycle of the application is complete and the

application is not ready for approval. A Complete Response Letter

may request additional information or clarification. The FDA may

delay or refuse approval of a BLA or NDA if applicable regulatory

criteria are not satisfied, require additional testing or

information and/or require post-marketing testing and

surveillance to monitor safety or efficacy of a product.}

_{If regulatory approval of a

product is granted, such approval may entail limitations on the

indicated uses for which such product may be marketed. For

example, the FDA may approve the BLA or NDA with a Risk

Evaluation and Mitigation Strategy, or REMS, plan to mitigate

risks, which could include medication guides, physician

communication plans, or elements to assure safe use, such as

restricted distribution methods, patient registries and other

risk minimization tools. The FDA also may condition approval on,

among other things, changes to proposed labeling or the

development of adequate controls and specifications. Once

approved, the FDA may withdraw the product approval if compliance

with pre- and post-marketing regulatory standards is not

maintained or if problems occur after the product reaches the

marketplace. The FDA may require one or more Phase 4 post-market

studies and surveillance to further assess and monitor the

products safety and effectiveness after commercialization, and

may limit further marketing of the product based on the results

of these post-marketing studies. In addition, new government

requirements, including those resulting from new legislation, may

be established, or the FDAs policies may change, which could

delay or prevent regulatory approval of its products under

development.}

_{A sponsor may seek approval of

its product candidate under programs designed to accelerate FDAs

review and approval of new drugs that meet certain criteria.

Specifically, new drug products are eligible for fast track

designation if they are intended to treat a serious or

life-threatening condition and demonstrate the potential to

address unmet medical needs for the condition. For a fast track

product, the FDA may consider sections of the BLA or NDA for

review on a rolling basis before the complete application is

submitted if relevant criteria are met. A fast track designated

product candidate may also qualify for priority review, under

which the FDA sets the target date for FDA action on the BLA

or}

₆

_{NDA at six months after the

FDA accepts the application for filing. Priority review is

granted when there is evidence that the proposed product would be

a significant improvement in the safety or effectiveness of the

treatment, diagnosis, or prevention of a serious condition. If

criteria are not met for priority review, the application is

subject to the standard FDA review period of 10 months after FDA

accepts the application for filing. Priority review designation

does not change the scientific/medical standard for approval or

the quality of evidence necessary to support approval.}

_{Under the accelerated approval

program, the FDA may approve a BLA or NDA on the basis of either

a surrogate endpoint that is reasonably likely to predict

clinical benefit, or on a clinical endpoint that can be measured

earlier than irreversible morbidity or mortality, that is

reasonably likely to predict an effect on irreversible morbidity

or mortality or other clinical benefit, taking into account the

severity, rarity, or prevalence of the condition and the

availability or lack of alternative treatments. Post-marketing

studies or completion of ongoing studies after marketing approval

are generally required to verify the biologics or drugs clinical

benefit in relationship to the surrogate endpoint or ultimate

outcome in relationship to the clinical benefit. In addition, the

Food and Drug Administration Safety and Innovation Act, or

FDASIA, which was enacted and signed into law in 2012,

established breakthrough therapy designation. A sponsor may seek

FDA designation of its product candidate as a breakthrough

therapy if the product candidate is intended, alone or in

combination with one or more other drugs or biologics, to treat a

serious or life-threatening disease or condition and preliminary

clinical evidence indicates that the therapy may demonstrate

substantial improvement over existing therapies on one or more

clinically significant endpoints, such as substantial treatment

effects observed early in clinical development. Sponsors may

request the FDA to designate a breakthrough therapy at the time

of or any time after the submission of an IND, but ideally before

an end-of-phase 2

meeting with FDA. If the FDA designates a breakthrough therapy,

it may take actions appropriate to expedite the development and

review of the application, which may include holding meetings

with the sponsor and the review team throughout the development

of the therapy; providing timely advice to, and interactive

communication with, the sponsor regarding the development of the

biologic or drug to ensure that the development program to gather

the nonclinical and clinical data necessary for approval is as

efficient as practicable; involving senior managers and

experienced review staff, as appropriate, in a collaborative,

cross-disciplinary review; assigning a cross-disciplinary project

lead for the FDA review team to facilitate an efficient review of

the development program and to serve as a scientific liaison

between the review team and the sponsor; and considering

alternative clinical trial designs when scientifically

appropriate, which may result in smaller or more efficient

clinical trials that require less time to complete and may

minimize the number of patients exposed to a potentially less

efficacious treatment. Breakthrough designation also allows the

sponsor to file sections of the BLA or NDA for review on a

rolling basis. Savara may seek designation as a breakthrough

therapy for some or all of its product candidates.}

_{Fast Track designation,

priority review and breakthrough therapy designation do not

change the standards for approval but may expedite the

development or approval process.}

_{Orphan Drug

Status}

_{Under the Orphan Drug Act, the

FDA may grant orphan drug designation to drug candidates intended

to treat a rare disease or condition, which is generally a

disease or condition that affects fewer than 200,000 individuals

in the United States, or more than 200,000 individuals in the

United States and for which there is no reasonable expectation

that costs of research and development of the drug for the

indication can be recovered by sales of the drug in the United

States. Orphan drug designation must be requested before

submitting a BLA or NDA. After the FDA grants orphan drug

designation, the generic identity of the therapeutic agent and

its potential orphan use are disclosed publicly by the FDA.

Although there may be some increased communication opportunities,

orphan drug designation does not convey any advantage in or

shorten the duration of the regulatory review and approval

process.}

_{If a biologic or drug

candidate that has orphan drug designation subsequently receives

the first FDA approval for the disease for which it has such

designation, the product is entitled to orphan exclusivity, which

means that the FDA may not approve any other applications,

including a full BLA or NDA, to market the same drug for the same

indication for seven years, except in very limited circumstances,

such as if the second applicant demonstrates the clinical

superiority of its product or if FDA finds that the holder of the

orphan exclusivity has not shown that it can assure the

availability of sufficient quantities of the orphan drug to meet

the needs of patients with the disease or condition for which the

biologic or drug was designated. Orphan exclusivity does not

prevent the FDA from approving a different biologic or drug for

the same disease or condition, or the same biologic or drug for a

different disease or condition. Among the other benefits of

orphan designation are tax credits for certain research and a

waiver of the BLA or NDA application user fee.}

₇

_{Orphan exclusivity could block

the approval of Savaras biologic or drug candidates for seven

years if a competitor obtains approval of the same product as

defined by the FDA or if Savaras biologic or drug candidate is

determined to be contained within the competitors product for the

same indication or disease.}

_{As in the United States,

designation as an orphan product for the treatment of a specific

indication in the European Union, must be made before the

application for marketing authorization is made. Orphan products

in Europe enjoy economic and marketing benefits, including up to

10 years of market exclusivity for the approved indication unless

another applicant can show that its product is safer, more

effective or otherwise clinically superior to the orphan

designated product.}

_{The FDA and foreign regulators

expect holders of exclusivity for orphan biologics or drugs to

assure the availability of sufficient quantities of their orphan

biologic or drugs to meet the needs of patients. Failure to do so

could result in the withdrawal of marketing exclusivity for the

orphan biologic or drug.}

_{GAIN Exclusivity

for Antibiotics}

_{In 2012, Congress passed

legislation known as the Generating Antibiotic Incentives Now

Act, or GAIN Act. This legislation is designed to encourage the

development of antibacterial and antifungal drug products that

treat pathogens that cause serious and life-threatening

infections. To that end, the new law grants an additional five

years of exclusivity upon the approval of an NDA for a drug

product designated by FDA as a QIDP. Thus, for a QIDP with Orphan

Designation, the periods of five-year exclusivity and seven-year

orphan drug exclusivity, would become 12 years.}

_{A QIDP is defined in the GAIN

Act to mean an antibacterial or antifungal drug for human use

intended to treat serious or life-threatening infections,

including those caused by (1)an antibacterial or antifungal

resistant pathogen, including novel or emerging infectious

pathogens or (2)certain qualifying pathogens. A qualifying

pathogen is a pathogen that has the potential to pose a serious

threat to public health (such as resistant Gram-positive

pathogens, multi-drug resistant Gram-negative bacteria,

multi-drug resistant tuberculosis, and C. difficile) and that is

included in a list established and maintained by FDA. A drug

sponsor may request the FDA to designate its product as a QIDP

any time before the submission of an NDA. The FDA must make a

QIDP determination within 60 days of the designation request. A

product designated as a QIDP will be granted priority review by

the FDA and can qualify for fast track status.}

_{The additional five years of

exclusivity under the GAIN Act for drug products designated by

the FDA as QIDPs applies only to a drug that is first approved on

or after July9, 2012. Additionally, the five year exclusivity

extension does not apply to: a supplement to an application under

FDCA Section505(b) for any QIDP for which an extension is in

effect or has expired; a subsequent application filed with

respect to a product approved by the FDA for a change that

results in a new indication, route of administration, dosing

schedule, dosage form, delivery system, delivery device or

strength; or a product that does not meet the definition of a

QIDP under Section505(g) based upon its approved

uses.}

_{Abbreviated

Licensure Pathway for Biological Products as Biosimilar or

Interchangeable}

_{The Patient Protection and

Affordable Care Act, or the ACA, signed into law in March, 2010,

includes a subtitle called the Biologics Price Competition and

Innovation Act of 2009, or BPCIA, which amended the Public Health

Services Act and created an abbreviated approval pathway for

biological products shown to be highly similar to an FDA-licensed

reference biological product. The BPCIA attempts to minimize

duplicative testing, and thereby lower development costs and

increase patient access to affordable treatments.}

_{The timing of final FDA

approval of a biosimilar for commercial distribution depends on a

variety of factors, including whether the manufacturer of the

branded product is entitled to one or more statutory exclusivity

periods, during which time the FDA is prohibited from approving

any products that are biosimilar to the branded product. The FDA

cannot approve a biosimilar application for twelve years from the

date of first licensure of the reference product. Additionally, a

biosimilar product sponsor may not submit an biosimilar

application for four years from the date of first}

₈

_{licensure of the reference

product. A reference product may also be entitled to exclusivity

under other statutory provisions. For example, a reference

product designated for a rare disease or condition (an orphan

drug) may be entitled to seven years of exclusivity, in which

case no product that is biosimilar to the reference product may

be approved until either the end of the twelve-year period

provided under the BPCIA or the end of the seven-year orphan

exclusivity period, whichever occurs later. In addition, the FDA

may under certain circumstances extend the exclusivity period for

the reference product by an additional six months if the FDA

requests, and the manufacturer undertakes, studies on the effect

of its product in children, a so-called pediatric

extension.}

_{The first biological product

determined to be interchangeable with a branded product for any

condition of use is also entitled to a period of exclusivity,

during which time the FDA may not determine that another product

is interchangeable with the reference product for any condition

of use. This exclusivity period extends until the earlier of:

(1)on year after the first commercial marketing of the first

interchangeable product; (2) 18 months after resolution of a

patent infringement suit instituted against the applicant that

submitted the application for the first interchangeable product,

based on a final court decision regarding all of the patents in

the litigation or dismissal of the litigation with or without

prejudice; (3) 42 months after approval of the first

interchangeable product, if a patent infringement suit instituted

against the applicant that submitted the application for the

first interchangeable product is still ongoing; or (4) 18 months

after approval of the first interchangeable product if the

applicant that submitted the application for the first

interchangeable product has not been sued.}

_{505(b)(2) New Drug

Application}

_{The provisions of section

505(b)(2) of the Food, Drug, and Cosmetic Act, or the FDCA, were

created, in part, to help avoid unnecessary duplication of

studies already performed on a previously approved (reference or

listed) drug; the section gives the FDA express permission to

rely on data not developed by the NDA applicant. An NDA filed

under section 505(b)(2) is one for which one or more of the

investigations relied upon by the applicant for approval were not

conducted by or for the applicant and for which the applicant has

not obtained a right of reference or use from the person by or

for whom the investigations were conducted. We are pursuing a

section 505(b)(2) regulatory strategy for AeroVanc.}

_{The owner of an NDA for a

branded drug product may list with the FDA certain patents whose

claims allegedly cover the applicants branded product. Each of

the patents listed in the application for the drug is then

published in the Orange Book. Any applicant who files a 505(b)(2)

NDA application referencing a drug listed in the Orange Book must

certify to the FDA that: (1)no patent information on the drug

product that is the subject of the application has been submitted

to the FDA, referred to as a Paragraph I Certification; (2)such

patent has expired, referred to as a Paragraph II Certification;

(3)the date on which such patent expires, referred to ad a

Paragraph III Certification; or (4)such patent is invalid or will

not be infringed upon by the manufacture, use or sale of the drug

product for which the application is submitted, referred to as a

Paragraph IV Certification. The applicant may also elect to

submit a section viii statement certifying that its proposed

label does not contain, or carves out, any language regarding the

patented method-of use rather than certify to a listed

method-of-use patent. An applicant submitting a Paragraph IV

Certification must provide notice to each owner of the patent

that is the subject of the certification and to the holder of the

approved branded drug to which the 505(b)(2) application refers.

If the reference branded drug holder and patent owners assert a

patent challenge directed to one of the Orange Book listed

patents within 45 days of the receipt of the Paragraph IV

Certification notice, the FDA is prohibited from approving the

505(b)(2) application until the earlier of 30 months from the

receipt of the Paragraph IV Certification, expiration for the

patent, settlement of the lawsuit, or a decision in the

infringement case that is favorable to the

applicant.}

_{Additionally, a 505(b)(2)

application also will not be approved until any applicable

non-patent exclusivity listed in the Orange Book for the NDA

branded reference drug has expired as described in further detail

below. Market and data exclusivity provisions under the FDCA can

delay the submission or the approval of certain applications for

competing products. In addition to patent exclusivities, the

holder of the NDA for a reference listed drug may be entitled to

a period of non-patent exclusivity, during which the FDA cannot

approve another drug application that relies on the listed drug.

For example, a pharmaceutical manufacturer may obtain five years

of non-patent

exclusivity upon NDA approval of a new chemical entity, or NCE,

which is a drug that contains an active moiety that has not been

approved by the FDA in any other NDA. An active moiety is defined

as the molecule or ion responsible for the drug substances

physiological}

₉

_{or pharmacologic action.

During the five-year exclusivity period, the FDA cannot accept

for filing any application for the same active moiety and that

relies on the FDAs findings regarding that drug; the FDA may

accept an application for filing after four years if the

follow-on applicant makes a Paragraph IV Certification. A drug

may obtain a three-year period of exclusivity for a particular

condition of approval, or change to a marketed product, such as a

new formulation for a previously approved product, if one or more

new clinical trials, other than bioavailability or bioequivalence

studies, was essential to the approval of the application and was

conducted or sponsored by the applicant. Should this occur, the

FDA would be precluded from approving any Abbreviated New Drug

Application, or ANDA, that references such product until after

that three-year exclusivity period has run. However, unlike NCE

exclusivity, the FDA can accept an application and begin the

review process during the entire exclusivity

period.}

_{Post-Approval

Requirements}

_{Any products manufactured or

distributed by us to FDA approvals are subject to pervasive and

continuing regulation by the FDA, including, among other things,

requirements relating to record-keeping, reporting of adverse

experiences, periodic reporting, distribution, and advertising

and promotion of the product. After approval, most changes to the

approved product, such as adding new indications or other

labeling claims, are subject to prior FDA review and approval.

There also are continuing, annual user fee requirements for any

marketed products and the establishments at which such products

are manufactured, as well as new application fees for

supplemental applications with clinical data. Drug manufacturers

and their subcontractors are required to register their

establishments with the FDA and certain state agencies, and are

subject to periodic unannounced inspections by the FDA and

certain state agencies for compliance with GMP, which impose

certain procedural and documentation requirements upon Savara and

its third-party manufacturers. Changes to the manufacturing

process are strictly regulated, and, depending on the

significance of the change, may require prior FDA approval before

being implemented. FDA regulations also require investigation and

correction of any deviations from cGMP and impose reporting

requirements upon us and any third-party manufacturers that

Savara may decide to use. Accordingly, manufacturers must

continue to expend time, money and effort in the area of

production and quality control to maintain compliance with cGMP

and other aspects of regulatory compliance. Savara cannot be

certain that it or its present or future suppliers will be able

to comply with the cGMP regulations and other FDA regulatory

requirements. If Savaras present or future suppliers are not able

to comply with these requirements, the FDA may, among other

things, halt its clinical trials, require them to recall a

product from distribution, or withdraw approval of the

NDA.}

_{Future FDA and state

inspections may identify compliance issues at Savaras facilities

or at the facilities of its contract manufacturers that may

disrupt production or distribution, or require substantial

resources to correct. In addition, discovery of previously

unknown problems with a product or the failure to comply with

applicable requirements may result in restrictions on a product,

manufacturer or holder of an approved NDA, including withdrawal

or recall of the product from the market or other voluntary,

FDA-initiated or judicial action that could delay or prohibit

further marketing.}

_{The FDA may withdraw approval

of an NDA if compliance with regulatory requirements and

standards is not maintained or if problems occur after the

product reaches the market. Later discovery of previously unknown

problems with a product, including adverse events of

unanticipated severity or frequency, or with manufacturing

processes, or failure to comply with regulatory requirements, may

result in revisions to the approved labeling to add new safety

information; imposition of post-market studies or clinical

studies to assess new safety risks; or imposition of distribution

restrictions or other restrictions under a REMS program. Other

potential consequences include, among other

things:}

restrictions on the marketing or manufacturing of the
product, complete withdrawal of the product from the market
or product recalls;

fines, warning letters or holds on post-approval clinical
studies;

refusal of the FDA to approve pending applications or
supplements to approved applications, or suspension or
revocation of product license approvals;

product seizure or detention, or refusal to permit the import
or export of products; or

injunctions or the imposition of civil or criminal penalties.

₁₀

_{The FDA closely regulates the

marketing, labeling, advertising and promotion of drugs and

biologics. A company can make only those claims relating to

safety and efficacy that are approved by the FDA and in

accordance with the provisions of the approved label. The FDA and

other agencies actively enforce the laws and regulations

prohibiting the promotion of off-label uses. Failure to comply

with these requirements can result in, among other things,

adverse publicity, warning letters, corrective advertising and

potential civil and criminal penalties. Physicians may prescribe

legally available products for uses that are not described in the

products labeling and that differ from those tested by Savara and

approved by the FDA. Such off-label uses are common across

medical specialties. Physicians may believe that such off-label

uses are the best treatment for many patients in varied

circumstances. The FDA does not regulate the behavior of

physicians in their choice of treatments. The FDA does, however,

restrict manufacturers communications on the subject of off-label

use of their products.}

_{Government

Regulationof Combination

Products}

_{Savaras products under

development will be regulated as combination products, which

means that they are comprised of two or more different components

that, if marketed individually, would be subject to different

regulatory paths and would require approval of independent

marketing applications by the FDA. A combination product,

however, is assigned to a Center with the FDA that will have

primary jurisdiction over its regulation on a determination of

the combination products primary mode of action, which is the

single mode of action that provides the most important

therapeutic action. Savara believes its product candidates

include both a drug and medical device component, and will be

regulated as a drug, subject to the review of the FDAs Center for

Drug Evaluation and Research, or CDER, which will have primary

jurisdiction over premarket development and approval. FDAs Center

for Devices and Radiological Health, or CDRH, will provide

support and review of the inhaler component of the product

candidate.}

_{Other Healthcare

Laws and Compliance

Requirements}

_{Savaras sales, promotion,

medical education, clinical research and other activities

following product approval will be subject to regulation by

numerous regulatory and law enforcement authorities in the United

States in addition to FDA, including potentially the Federal

Trade Commission, the Department of Justice, the Centers for

Medicare and Medicaid Services, or CMS, other divisions of the

U.S. Department of Health and Human Services and state and local

governments. Savaras promotional and scientific/educational

programs and interactions with healthcare professionals must

comply with the federal Anti-Kickback Statute, the civil False

Claims Act, physician payment transparency laws, privacy laws,

security laws, and additional federal and state laws similar to

the foregoing.}

_{The federal Anti-Kickback

Statute prohibits, among other things, the knowing and willing,

direct or indirect offer, receipt, solicitation or payment of

remuneration in exchange for or to induce the referral of

patients, including the purchase, order or lease of any good,

facility, item or service that would be paid for in whole or part

by Medicare, Medicaid or other federal health care programs.

Remuneration has been broadly defined to include anything of

value, including cash, improper discounts, and free or reduced

price items and services. The federal Anti-Kickback Statute has

been interpreted to apply to arrangements between pharmaceutical

manufacturers on one hand and prescribers, purchasers, formulary

managers, and beneficiaries on the other. Although there are a

number of statutory exceptions and regulatory safe harbors

protecting some common activities from prosecution, the

exceptions and safe harbors are drawn narrowly. Practices that

involve remuneration that may be alleged to be intended to induce

prescribing, purchases or recommendations may be subject to

increased scrutiny and review if they do not qualify for an

exception or safe harbor. Failure to meet all of the requirements

of a particular applicable statutory exception or regulatory safe

harbor does not make the conduct per se illegal under the federal

Anti-Kickback Statute. Instead, the legality of the arrangement

will be evaluated on a case-by-case basis based on a cumulative

review of all its facts and circumstances. Several courts have

interpreted the statutes intent requirement to mean that if any

one purpose of an arrangement involving remuneration is to induce

referrals of federal healthcare covered business, the federal

Anti-Kickback Statute has been violated. The government has

enforced the federal Anti-Kickback Statute to reach large

settlements with healthcare companies based on sham research or

consulting and other financial arrangements with physicians.

Further, a person or entity does not need to have actual

knowledge of the statute or specific intent to violate it to have

committed a violation. In addition, the government may assert

that a claim including items or services resulting from a

violation of the federal Anti-Kickback Statute constitutes a

false or fraudulent claim for purposes of the False Claims Act.

Many states have similar laws that apply to their state health

care programs as well as private payers.}

₁₁

_{Federal false claims and false

statement laws, including the federal civil False Claims Act, or

FCA, imposes liability on persons and/or entities that, among

other things, knowingly present or cause to be presented claims

that are false or fraudulent or not provided as claimed for

payment or approval by a federal health care program. The FCA has

been used to prosecute persons or entities that cause the

submission of claims for payment that are inaccurate or

fraudulent, by, for example, providing inaccurate billing or

coding information to customers, promoting a product off-label, submitting claims

for services not provided as claimed, or submitting claims for

services that were provided but not medically necessary. Actions

under the FCA may be brought by the Attorney General or as a qui

tam action by a private individual, or whistleblower, in the name

of the government. Violations of the FCA can result in

significant monetary penalties and treble damages. The federal

government is using the FCA, and the accompanying threat of

significant liability, in its investigation and prosecution of

pharmaceutical and biotechnology companies throughout the

country, for example, in connection with the promotion of

products for unapproved uses and other illegal sales and

marketing practices. The government has obtained multi-million

and multi-billion dollar settlements under the FCA in addition to

individual criminal convictions under applicable criminal

statutes. In addition, certain companies that were found to be in

violation of the FCA have been forced to implement extensive

corrective action plans, and have often become subject to consent

decrees or corporate integrity agreements, restricting the manner

in which they conduct their business.}

_{The federal Health Insurance

Portability and Accountability Act of 1996, or HIPAA, created

additional federal criminal statutes that prohibit, among other

things, knowingly and willfully executing, or attempting to

execute, a scheme to defraud any healthcare benefit program,

including private third-party payers; knowingly and willfully

falsifying, concealing or covering up a material fact or making

any materially false, fictitious or fraudulent statement in

connection with the delivery of or payment for healthcare

benefits, items or services; and willfully obstructing a criminal

investigation of a healthcare offense. Like the federal

Anti-Kickback Statute, the Affordable Care Act amended the intent

standard for certain healthcare fraud statutes under HIPAA such

that a person or entity no longer needs to have actual knowledge

of the statute or specific intent to violate it in order to have

committed a violation.}

_{Given the significant size of

actual and potential settlements, it is expected that the

government will continue to devote substantial resources to

investigating healthcare providers and manufacturers compliance

with applicable fraud and abuse laws. Also, many states have

similar fraud and abuse statutes or regulations that may be

broader in scope and may apply regardless of payer, in addition

to items and services reimbursed under Medicaid and other state

programs. Additionally, to the extent that Savaras products, once

commercialized, are sold in a foreign country, Savara may be

subject to similar foreign laws.}

_{In addition, there has been a

recent trend of increased federal and state regulation of

payments made to physicians and other healthcare providers. The

Patient Protection and Affordable Care Act, as amended by the

Health Care and Education Reconciliation Act, or collectively,

the Affordable Care Act, among other things, imposed new

reporting requirements on certain manufacturers of drugs,

devices, biologics and medical supplies for which payment is

available under Medicare, Medicaid or the Childrens Health

Insurance Program, with specific exceptions, for payments or

other transfers of value made by them to physicians and teaching

hospitals, as well as ownership and investment interests held by

physicians and their immediate family members. Covered

manufacturers are required to collect and report detailed payment

data and submit legal attestation to the accuracy of such data to

the government each year. Failure to submit required information

may result in civil monetary penalties of up to an aggregate of

$150,000 per year (or up to an aggregate of $1million per year

for knowing failures), for all payments, transfers of value or

ownership or investment interests that are not timely, accurately

and completely reported in an annual submission. Additionally,

entities that do not comply with mandatory reporting requirements

may be subject to a corporate integrity agreement. Certain states

also mandate implementation of commercial compliance programs,

impose restrictions on covered manufacturers marketing practices

and/or require the tracking and reporting of gifts, compensation

and other remuneration to physicians and other healthcare

professionals.}

_{Savara may also be subject to

data privacy and security regulation by both the federal

government and the states in which it conducts its business.

HIPAA, as amended by the Health Information Technology and

Clinical Health Act, or HITECH, and their respective implementing

regulations, imposes specified requirements on certain health

care providers, plans and clearinghouses (collectively, covered

entities) and their business associates, relating to the privacy,

security and transmission of individually identifiable health

information. Among other things, HITECH makes

HIPAAs}

₁₂

_{security standards directly

applicable to business associates, defined as independent

contractors or agents of covered entities that create, receive,

maintain or transmit protected health information in connection

with providing a service for or on behalf of a covered entity.

HITECH also increased the civil and criminal penalties that may

be imposed against covered entities, business associates and

possibly other persons, and gave state attorneys general new

authority to file civil actions for damages or injunctions in

federal courts to enforce HIPAA and seek attorneys fees and costs

associated with pursuing federal civil actions. In addition,

certain states have their own laws that govern the privacy and

security of health information in certain circumstances, many of

which differ from each other and/or HIPAA in significant ways and

may not have the same effect, thus complicating compliance

efforts.}

_{If Savaras operations are

found to be in violation of any of such laws or any other

governmental regulations that apply to them, Savara may be

subject to penalties, including, without limitation, civil and

criminal penalties, damages, fines, disgorgement, the curtailment

or restructuring of its operations, exclusion from participation

in federal and state healthcare programs, imprisonment,

contractual damages, reputational harm, and diminished profits

and future earnings, any of which could adversely affect its

ability to operate its business and its financial

results.}

_{In addition to the foregoing

health care laws, Savara is also subject to the U.S. Foreign

Corrupt Practices Act and similar worldwide anti-bribery laws,

which generally prohibit companies and their intermediaries from

making improper payments to government officials or

private-sector recipients for the purpose of obtaining or

retaining business. Savara has plans to adopt an anti-corruption

policy, which will become effective upon the completion of this

offering, and expect to prepare and implement procedures to

ensure compliance with such policy. The anti-corruption policy

mandates compliance with the FCPA and similar anti-bribery laws

applicable to its business throughout the world. However, Savara

cannot assure you that such a policy or procedures implemented to

enforce such a policy will protect them from intentional,

reckless or negligent acts committed by its employees,

distributors, partners, collaborators or agents. Violations of

these laws, or allegations of such violations, could result in

fines, penalties or prosecution and have a negative impact on its

business, results of operations and

reputation.}

_{Coverage and

Reimbursement}

_{Sales of pharmaceutical

products depend significantly on the extent to which coverage and

adequate reimbursement are provided by third-party payers.

Third-party payers include state and federal government health

care programs, managed care providers, private health insurers

and other organizations. Although Savara currently believes that

third-party payers will provide coverage and reimbursement for

its product candidates, if approved, Savara cannot be certain of

this. Third-party payers are increasingly challenging the price,

examining the cost-effectiveness, and reducing reimbursement for

medical products and services. In addition, significant

uncertainty exists as to the reimbursement status of newly

approved healthcare products. The U.S. government, state

legislatures and foreign governments have continued implementing

cost containment programs, including price controls, restrictions

on coverage and reimbursement and requirements for substitution

of generic products. Adoption of price controls and cost

containment measures, and adoption of more restrictive policies

in jurisdictions with existing controls and measures, could

further limit Savaras net revenue and results. Savara may need to

conduct expensive clinical studies to demonstrate the comparative

cost-effectiveness of its products. The product candidates that

Savara develops may not be considered cost-effective and thus may

not be covered or sufficiently reimbursed. It is time consuming

and expensive for them to seek coverage and reimbursement from

third-party payers, as each payer will make its own determination

as to whether to cover a product and at what level of

reimbursement. Thus, one payers decision to provide coverage and

adequate reimbursement for a product does not assure that another

payer will provide coverage or that the reimbursement levels will

be adequate. Moreover, a payers decision to provide coverage for

a drug product does not imply that an adequate reimbursement rate

will be approved. Reimbursement may not be available or

sufficient to allow them to sell its products on a competitive

and profitable basis.}

_{Healthcare

Reform}

_{The United States and some

foreign jurisdictions are considering or have enacted a number of

legislative and regulatory proposals to change the healthcare

system in ways that could materially affect Savaras ability to

sell its products profitably. Among policy makers and payers in

the United States and elsewhere, there is significant interest in

promoting changes in healthcare systems with the stated goals of

containing healthcare costs, improving quality and/or expanding

access. In the United States, the pharmaceutical industry has

been a particular focus of these efforts and has been

significantly affected by major legislative

initiatives.}

₁₃

_{By way of example, in

March2010, the Affordable Care Act was signed into law, intended

to broaden access to health insurance, reduce or constrain the

growth of healthcare spending, enhance remedies against fraud and

abuse, add new transparency requirements for the healthcare and

health insurance industries, impose new taxes and fees on the

health industry and impose additional health policy reforms.

Among the provisions of the Affordable Care Act of importance to

Savaras potential drug candidates are:}

an annual, nondeductible fee on any entity that manufactures
or imports specified branded prescription drugs and biologic
agents, apportioned among these entities according to their
market share in certain government healthcare programs;

an increase in the statutory minimum rebates a manufacturer
must pay under the Medicaid Drug Rebate Program to 23.1% and
13.0% of the average manufacturer price for branded and
generic drugs, respectively;

a new methodology by which rebates owed by manufacturers
under the Medicaid Drug Rebate Program are calculated for
drugs that are inhaled, infused, instilled, implanted or
injected;

a new Medicare PartD coverage gap discount program, in which
manufacturers must agree to offer 50% point-of-sale discounts
off negotiated prices of applicable brand drugs to eligible
beneficiaries during their coverage gap period, as a
condition for a manufacturers outpatient drugs to be covered
under Medicare PartD;

extension of a manufacturers Medicaid rebate liability to
covered drugs dispensed to individuals who are enrolled in
Medicaid managed care organizations;

expansion of eligibility criteria for Medicaid programs by,
among other things, allowing states to offer Medicaid
coverage to additional individuals and by adding new
mandatory eligibility categories for certain individuals with
income at or below 133% of the federal poverty level, thereby
potentially increasing a manufacturers Medicaid rebate
liability;

expansion of the entities eligible for discounts under the
Public Health Service pharmaceutical pricing program; and

a new Patient-Centered Outcomes Research Institute to
oversee, identify priorities in, and conduct comparative
clinical effectiveness research, along with funding for such
research.

_{In addition, other legislative

changes have been proposed and adopted since the Affordable Care

Act was enacted. These changes include, among others, the Budget

Control Act of 2011, which mandates aggregate reductions to

Medicare payments to providers of up to 2% per fiscal year

effective April1, 2013, and, due to subsequent legislative

amendments, will remain in effect through 2024 unless additional

Congressional action is taken. In January2013, President Obama

signed into law the American Taxpayer Relief Act of 2012, which,

among other things, further reduced Medicare payments to several

providers, including hospitals and cancer treatment centers,

increased the statute of limitations period for the government to

recover overpayments to providers from three to five years. These

new laws may result in additional reductions in Medicare and

other healthcare funding, which could have a material adverse

effect on customers for Savaras product candidates, if approved,

and, accordingly, its financial

operations.}

_{Savara expects that healthcare

reform measures that may be adopted in the future, including the

possible repeal and replacement of the Affordable Care Act which

the Trump administration has stated is a priority, are

unpredictable, and the potential impact on Savaras operations and

financial position are uncertain, but may result in more rigorous

coverage criteria and lower reimbursement, and place additional

downward pressure on the price that it receives for any approved

product. Any reduction in reimbursement from Medicare or other

government-funded programs may result in a similar reduction in

payments from private payers. The implementation of cost

containment measures or other healthcare reforms may prevent

Savara from being able to generate revenue, attain profitability

or commercialize their drugs.}

₁₄

_{Foreign

Regulation}

_{In addition to regulations in

the United States, Savara will be subject to a variety of foreign

regulations governing clinical trials and commercial sales and

distribution of its products to the extent Savara chooses to

develop or sell any products outside of the United States. The

approval process varies from country to country and the time may

be longer or shorter than that required to obtain FDA approval.

The requirements governing the conduct of clinical trials,

product licensing, pricing and reimbursement vary greatly from

country to country.}

_{There is

significant uncertainty regarding the regulatory approval process

for any investigational new drug, substantial further testing and

validation of Savaras product candidates and related

manufacturing processes may be required, and regulatory approval

may be conditioned, delayed or denied, any of which could delay

or prevent Savara from successfully marketing its product

candidates and substantially harm its

business.}

_{Pharmaceutical products

generally are subject to rigorous nonclinical testing and

clinical studies and other approval procedures mandated by the

FDA and foreign regulatory authorities. Various federal and

foreign statutes and regulations also govern or materially

influence the manufacturing, safety, labeling, storage, record

keeping and marketing of pharmaceutical products. The process of

obtaining these approvals and the subsequent compliance with

appropriate U.S. and foreign statutes and regulations is

time-consuming and requires the expenditure of substantial

resources.}

_{Savara is preparing AeroVanc

for a Phase 3 trial, the success of which will be needed for FDA

approval to market AeroVanc in the United States to treat

persistent MRSA lung infection in cystic fibrosis patients. While

significant communication with the FDA on the Phase 3 study

design has occurred, even if the Phase 3 clinical study meets all

of its statistical goals and protocol end points, the FDA may not

view the results as robust and convincing. They may require

additional clinical studies and/or other costly studies, which

could require Savara to expend substantial additional resources

and could significantly extend the timeline for clinical

development prior to market approval. Additionally, Savara is

required by the FDA to conduct a two-year nonclinical

carcinogenicity study on the AeroVanc powder. The results of this

study will not be known until a short time prior to potential

submission of an NDA for AeroVanc. If the carcinogenicity study

cannot be completed for technical or other reasons, or provides

results that the FDA determine to be concerning, this may cause a

delay or failure in obtaining approval for

AeroVanc.}

_{Molgradex is currently

undergoing a Phase 3 clinical study in Europe and Japan.

Concurrently, Savara plans to explore formulation changes to

Molgradex that could simplify the composition of the drug product

by eliminating one or more potentially unnecessary or harmful

excipients. While this change is expected by Savara to improve

the product quality and possibly reduce other documentation

requirements, the regulatory agencies may require additional

clinical or nonclinical studies prior to approval of such

formulation changes. Savara currently plans not to make any

formulation changes prior to submitting applications to

regulatory authorities for regulatory approvals of Molgradex, but

instead, to qualify the excipients in its nonclinical and

clinical studies. However, regulatory agencies may request Savara

to attempt to make the aforementioned formulation changes prior

to approval of the product, and therefore, even if current

clinical studies are deemed successful, such formulation changes

could require Savara to expend substantial additional resources,

including conducting an additional Phase 3 clinical study that

would significantly extend the timeline for clinical development

of Molgradex in PAP.}

_{Savara has recently received

guidance from the FDA on the requirements to initiate clinical

studies in the United States and on the clinical study

requirements to achieve BLA approval for Molgradex. Based on the

guidance, Savara plans to amend its ongoing Phase 3 clinical

study to include more patients, and to amend its endpoint

hierarchy and statistical analyses to be used for U.S. approval

purposes prior to submission of a U.S. IND. However, no agreement

has yet been reached on the specific details of the statistical

analysis plan, which Savara plans to submit for FDA review prior

to the data analysis. Furthermore, even if the clinical study

meets all of its statistical goals and protocol end points, the

FDA may not view the results to provide persuasive evidence of

efficacy across multiple clinical endpoints. Instead, they may

require additional clinical studies and/or other costly studies,

including an additional Phase 3 study, which would require Savara

to expend substantial additional resources and would

significantly extend the timeline for clinical development prior

to market approval, or in failure to complete the clinical

development of Molgradex.}

₁₅

_{Significant uncertainty exists

with respect to the regulatory approval process for any

investigational new drug, including AeroVanc and Molgradex.

Regardless of any guidance the FDA or foreign regulatory agencies

may provide a drugs sponsor during its development, the FDA or

foreign regulatory agencies retain complete discretion in

deciding whether to accept an NDA or BLA or the equivalent

foreign regulatory approval submission for filing or, if

accepted, approve an NDA or BLA. There are many components to an

NDA or BLA or marketing authorization application submission in

addition to clinical study data. For example, the FDA or foreign

regulatory agencies will review the sponsors internal systems and

processes, as well as those of its CROs, CMOs and other vendors,

related to development of its product candidates, including those

pertaining to its clinical studies and manufacturing processes.

Before accepting an NDA for review or before approving the NDA or

BLA, the FDA or foreign regulatory agencies may request that

Savara provide additional information that may require

significant resources and time to generate and there is no

guarantee that its product candidates will be approved for any

indication for which Savara may apply. The FDA or foreign

regulatory agencies may choose not to approve an NDA or BLA for

any of a variety of reasons, including a decision related to the

safety or efficacy data, manufacturing controls or systems, or

for any other issues that the agency may identify related to the

development of its product candidates. Even if one or more Phase

3 clinical studies are successful in providing statistically

significant evidence of the efficacy and safety of the

investigational drug, the FDA or foreign regulatory agencies may

not consider efficacy and safety data from the submitted studies

adequate scientific support for a conclusion of effectiveness

and/or safety and may require one or more additional Phase 3 or

other studies prior to granting marketing approval. If this were

to occur, the overall development cost for the product candidate

would be substantially greater and its competitors may bring

products to market before Savara, which could impair its ability

to generate revenues from the product candidates, or even seek

approval, if blocked by a competitors Orphan Drug exclusivity,

which would have a material adverse effect on Savaras business,

financial condition and results of

operations.}

_{Further, development of

Savaras product candidates and/or regulatory approval may be

delayed for reasons beyond its control. For example, U.S. federal

government shut-down or budget sequestration, such as one that

occurred during 2013, may result in significant reductions to the

FDAs budget, employees and operations, which may lead to slower

response times and longer review periods, potentially affecting

Savaras ability to progress development of its product candidates

or obtain regulatory approval for its product

candidates.}

_{Even if the FDA or foreign

regulatory agencies grant approvals for Savaras product

candidates, the conditions or scope of the approval(s) may limit

successful commercialization of the product candidates and impair

Savaras ability to generate substantial sales revenue. For

example, the FDA may approve label claims for AeroVanc with age

restrictions and/or treatment duration limitations, or Molgradex

with restrictions for use only by patients unresponsive to the

current standard of care. They may limit the label of AeroVanc or

Molgradex to a subset of patients based on a review of which

patient groups had the greatest efficacious response in clinical

studies. Such label restriction may be undesirable and may limit

successful commercialization. The FDA or foreign regulatory

agencies may also only grant marketing approval contingent on the

performance of costly post-approval nonclinical or clinical

studies, or subject to warnings or contraindications that limit

commercialization. Additionally, even after granting approval,

the manufacturing processes, labeling, packaging, distribution,

adverse event reporting, storage, advertising, promotion and

recordkeeping for its products will be subject to extensive and

ongoing regulatory requirements. These requirements include

submissions of safety and other post-marketing information and

reports, registration, and continued compliance with current good

manufacturing processes, or cGMP, good clinical practices,

international conference on harmonization regulations and good

laboratory practices, which are regulations and guidelines that

are enforced by the FDA or foreign regulatory agencies for all of

its clinical development and for any clinical studies that Savara

conducts}

₁₆

_{post-approval. The FDA or

foreign regulatory agencies may decide to withdraw approval, add

warnings or narrow the approved indications in the product label,

or establish risk management programs that could restrict

distribution of its products. These actions could result from,

among other things, safety concerns, including unexpected side

effects or drug-drug interaction problems, or concerns over

misuse of a product. If any of these actions were to occur

following approval, Savara may have to discontinue

commercialization of the product, limit its sales and marketing

efforts, implement risk minimization procedures, and/or conduct

post-approval studies, which in turn could result in significant

expense and delay or limit its ability to generate sales

revenues.}

_{Regulations may be changed

prior to submission of a marketing application that require

higher hurdles than currently anticipated. These may occur as a

result of drug scandals, recalls, or a political environment

unrelated to Savaras products.}

_{SPECIAL NOTE REGARDING

FORWARD-LOOKING STATEMENTS}

_{This Current Report on Form

8-K contains forward-looking statements within the meaning of

Section 27A of the Securities Act of 1933 and Section 21E of the

Securities Exchange Act of 1934. All statements, other than

statements of historical fact, included herein regarding the

development of our products, financial position, strategy,

regulatory status, clinical and nonclinical studies,

collaborations, commercial prospects, internal growth,

competition, intellectual property, regulatory reforms, products

and objectives are forward-looking statements. Forward-looking

statements may include, but are not limited to, statements

about:}

the anticipated timing, structure and results of the clinical
trials for our product candidates;

the anticipated timing and outcome of the regulatory review
process for our product candidates;

any statements of the plans, strategies and objectives for
our future operations;

any statements concerning proposed new products, services or
developments;

any statements regarding future economic conditions or
performance;

our ability to protect our intellectual property and operate
our business without infringing upon the intellectual
property rights of others; and

our estimates regarding the sufficiency of our cash resources
and our need for additional funding.

_{The words believe, anticipate,

estimate, plan, expect, intend, may, could, should, potential,

likely, projects, continue, will, and would and similar

expressions are intended to identify forward-looking statements,

although not all forward-looking statements contain these

identifying words. Forward-looking statements reflect our current

views with respect to future events, are based on assumptions and

are subject to risks and uncertainties. We cannot guarantee that

we actually will achieve the plans, intentions or expectations

expressed in our forward-looking statements and you should not

place undue reliance on these statements. There are a number of

important factors that could cause our actual results to differ

materially from those indicated or implied by our forward-looking

statements. These important factors include those discussed

herein and the risks and uncertainties described in Savaras

filings with the SEC including the Form 8-K filed on April 27,

2017, other filings on Form 8-K, the Annual Report on Form 10-K

for the fiscal year ended December 31, 2016, the Form 10-Q for

the quarter ended March 31, 2017 and the Registration Statement

on Form S-4, as amended, related to the Mast/Savara merger. These

factors and the other cautionary statements made herein and

therein should be read as being applicable to all related

forward-looking statements whenever they appear. Except as

required by law, we do not assume any obligation to update any

forward-looking statement. We disclaim any intention or

obligation to update or revise any forward-looking statement,

whether as a result of new information, future events or

otherwise.}

Item9.01

Financial Statements and Exhibits.

_{(b) Pro Forma Financial

Information}

₁₇

_{UNAUDITED PRO FORMA

CONDENSED COMBINED FINANCIAL

STATEMENTS}

_{The following unaudited pro

forma condensed combined financial statements give effect to the

merger between Savara Inc. (formerly known as Mast Therapeutics,

Inc.) and Aravas Inc. (formerly known as Savara Inc.) and Aravass

previously consummated acquisition of Serendex A/S (Serendex) as

discussed below. The merger was structured as a reverse merger

and Aravas was determined to be the accounting acquirer based

upon the terms of the merger and other factors including:

(i)Aravas security holders owned approximately 77% of the

combined company immediately following the closing of the merger,

(ii)Aravas directors hold the majority (5 out of 7) of board

seats in the combined company, and (iii)Aravas management holds

all key positions in the management of the combined company. The

transaction will be accounted for under the acquisition method of

accounting under accounting principles generally accepted in the

United States (US GAAP). Under the acquisition method of

accounting for the purpose of these unaudited pro forma condensed

combined financial statements, management of Savara and Aravas

have determined a preliminary estimated purchase price,

calculated as described in Note 2 to these unaudited pro forma

condensed combined financial statements. The net tangible and

intangible assets acquired and liabilities assumed in connection

with the transaction are recorded at their estimated acquisition

date fair values. Any excess of purchase price over fair value of

identified assets acquired and liabilities assumed will be

recognized as goodwill. A final determination of these estimated

fair values will be based on the actual net tangible and

intangible assets of Savara that exist as of the date of

completion of the transaction.}

_{Previously Consummated

Serendex Acquisition}

_{On July15, 2016, Aravas

completed its acquisition of Serendex for total purchase

consideration of $12.4million. The purchase consideration

consisted primarily of $2.9million in common stock and $9.5 of

contingent consideration. The acquisition of Serendex is

reflected in Aravass historical consolidated balance sheet at

March31, 2017.}

_{Pro Forma

Information}

_{The unaudited pro forma

condensed combined balance sheet as of March31, 2017 and the

unaudited pro forma condensed combined statements of operations

for the three months ended March31, 2017 and for the year ended

December31, 2016 are based on (i)the historical consolidated

results of operations of Aravas and its subsidiary (which include

the results of Serendex subsequent to Aravass July15, 2016

acquisition of Serendex); (ii) the historical consolidated

results of operations of Savara; (iii)and the historical results

of operations of Serendex for the period January1, 2016 to

July14, 2016.}

_{The unaudited pro forma

condensed combined balance sheet as of March31, 2017 assumes that

the merger took place on March31, 2017 and combines the

historical balance sheets of Savara and Aravas as of March31,

2017. The unaudited pro forma condensed combined statements of

operations for the three months ended March31, 2017 and for the

year ended December31, 2016 assumes that both the merger and the

acquisition of Serendex took place as of January1, 2016, and

combines the historical results of Savara and Aravas and the

pre-acquisition historical results of Serendex. The historical

financial statements of Savara, Aravas and Serendex (for the

interim period through June30, 2016), have been adjusted to give

pro forma effect to events that are (i)directly attributable to

the mergers, (ii)factually supportable, and (iii)with respect to

the statements of operations, expected to have a continuing

impact on the combined results.}

_{The unaudited pro forma

condensed combined financial statements are based on the

assumptions and adjustments that are described in the

accompanying notes. The unaudited pro forma condensed combined

financial statements and pro forma adjustments have been prepared

based on preliminary estimates of fair value of assets acquired

and liabilities assumed. Differences between these preliminary

estimates and the final acquisition accounting will occur and

these differences could have a material impact on the

accompanying unaudited pro forma condensed combined financial

statements and the combined companys future results of operations

and financial position.}

_{The unaudited pro forma

condensed combined financial statements do not give effect to the

potential impact of current financial conditions, regulatory

matters, operating efficiencies or other savings or expenses that

may be associated with the acquisition. The unaudited pro forma

condensed combined financial statements have been prepared for

illustrative purposes only and are not necessarily indicative of

the financial position or results of operations in future periods

or the results that actually would have been realized had Savara,

Aravas and Serendex been a combined company during the specified

periods. The unaudited pro forma condensed combined financial

statements, including the notes thereto, should be read in

conjunction with the Savara, Aravas and Serendex historical

audited financial statements for the year ended December31, 2016

and the unaudited condensed financial statements of Savara and

Aravas for the three months ended March31, 2017, and Serendex for

the six months ended June 30, 2016.}

₁₈

_{Unaudited Pro Forma

Condensed Combined Balance

Sheet}

_{March31,

2017}

_{(in

thousands)}


	Savara			Aravas			Pro Forma Merger Adjustments				ProForma Combined
Assets
Current assets:
Cash and cash equivalents	$	7,771			$	10,464		$	3,987			K	$	22,222
Investment securities
Grant and awards receivable
Prepaid expenses and other assets						1,038								1,426

Total current assets		8,159				11,502			3,987					23,648

Property, plant, and equipment, net
In-process research and development		2,500				10,609			18,803			G		31,912
Goodwill		3,007				3,089			18,394			H		24,490
Deposits and other non-current assets

Total assets	$	13,885			$	25,962		$	41,184				$	81,031

Liabilities, redeemable convertible preferred stock and stockholders deficit
Current liabilities:
Accounts payable	$				$			$					$	1,198
Accrued expenses and other liabilities		2,241				3,672						D		8,119
									1,850			E
Accrued compensation and payroll taxes		2,270												2,270
Debt facility		1,580							(1,580	)		K
Capital lease obligation, current portion

Total current liabilities		6,593				4,810								12,029

Noncurrent liabilities:
Accrued interest on convertible promissory notes									(238	)		F
Debt facility, net of current portion		1,933							5,567			K		7,500
Deferred income tax liability						2,334			7,526			I		10,855
Convertible promissory notes						3,597			(3,597	)		F
Put option liability						1,055			(1,055	)		F
Contingent consideration						9,808								9,808
Capital lease obligation, net of current portion
Other long-term liabilities

Total liabilities		9,535				22,726			8,829					41,090

Redeemable convertible preferred stock:
Convertible preferred stock						43,885			(43,885	)		C

Stockholders equity:
Common stock												B
												C
												F
Additional paid-in-capital		321,037				3,174			(287,271	)		A		86,684
									(3	)		B
									43,878			C
									5,869			F
Accumulated other comprehensive income/(loss)						(448	)							(448	)
Accumulated earnings/(deficit)		(316,942	)			(43,380	)		316,942			A		(46,566	)
									(356	)		D
									(1,850	)		E
									(980	)		F

Total stockholders equity/(deficit)		4,350				(40,649	)		76,240					39,941

Total liabilities and stockholders equity	$	13,885			$	25,962		$	41,184				$	81,031

_{See accompanying notes to the

unaudited pro forma condensed combined financial

statements.}

₁₉

_{Unaudited Pro Forma

Condensed Combined Statement of

Operations}

_{(in thousands, except

share and per share data)}


For the Three Months Ended March31, 2017
	Savara			Aravas			Pro Forma Merger Adjustment				Pro Forma Combined
Grant revenue	$				$			$					$
Operating expenses:
Product development		1,443				2,948								4,391
General and administrative		1,585												2,329
Impairment of IPRD
Depreciation and amortization
Transaction related costs		2,752							(3,744	)		J

Total operating expenses		5,791				4,774			(3,744	)				6,821

Loss from operations		(5,697	)			(4,774	)		3,744					(6,727	)
Interest and other income (expense), net		(172	)			(437	)					K		(588	)

Loss before income taxes		(5,869	)			(5,211	)		3,765					(7,315	)
Income taxes

Net loss	$	(5,869	)		$	(4,974	)	$	3,765				$	(7,078	)
Accretion of redeemable convertible preferred stock						(24	)							(24	)

Net loss attributable to common stockholders	$	(5,869	)		$	(4,998	)	$	3,765				$	(7,102	)

Basic and diluted net loss per share	$	(1.61	)		$	(0.97	)	$					$	(0.46	)

Weighted average common share outstanding- basic and diluted		3,639,242				5,169,323			6,571,593			B		15,380,158

_{See accompanying notes to the

unaudited pro forma condensed combined financial

statements.}

₂₀

_{Unaudited Pro Forma

Condensed Combined Statement of

Operations}

_{(in thousands, except

share and per share data)}


For the Year Ended December31, 2016
	Savara			Aravas			Serendex		Pro Forma Merger Adjustment				Pro Forma Combined
							(seenote4)
Grant revenue	$				$			$			$				$
Operating expenses:
Product development		20,793				8,182			4,102							33,077
General and administrative		9,342				2,503			2,665							14,510
Impairment of IPRD		6,049														6,049
Depreciation and amortization
Transaction related costs												(618	)	J

Total operating expenses		36,584				11,348			6,767			(618	)			54,081

Loss from operations		(36,456	)			(10,948	)		(6,767	)						(53,553	)
Interest and other income (expense), net		(2,053	)			(332	)		(58	)		1,424		K		(1,019	)

Loss before income taxes		(38,509	)			(11,280	)		(6,825	)		2,042				(54,572	)
Income taxes		2,409														2,766

Net loss	$	(36,100	)		$	(10,923	)	$	(6,825	)	$	2,042			$	(51,806	)
Accretion of redeemable convertible preferred stock						(94	)									(94	)

Net loss attributable to common stockholders	$	(36,100	)		$	(11,017	)	$	(6,825	)	$	2,042			$	(51,900	)

Basic and diluted net loss per share	$	(12.12	)		$	(3.29	)	$			$				$	(4.12	)

Weighted average common share outstanding- basic and diluted		2,978,348				3,348,647						6,260,093		B		12,587,088

_{See accompanying notes to the

unaudited pro forma condensed combined financial

statements.}

₂₁

_{NOTES TO THE UNAUDITED

PRO FORMA}

_{CONDENSED COMBINED

FINANCIAL INFORMATION}

_{1. Description of

Transaction and Basis of

Presentation}

_{Description of

Transaction}

_{On January6, 2017, Aravas

entered into the Merger Agreement with Savara, to which, among

other things, subject to the satisfaction or waiver of the

conditions set forth in the Merger Agreement, that a wholly-owned

subsidiary of Savara will merge with and into Aravas, with Aravas

becoming a wholly-owned subsidiary of Savara and the surviving

corporation of the merger. At the closing of the merger, each

outstanding share of Aravass common stock was converted into the

right to receive approximately .5860 of a share of common stock

of Savara, as well as the payment of cash in lieu of fractional

shares. Immediately following the effective time of the merger,

Savara equity holders owned approximately 23% of the outstanding

capital stock of the combined company, with Aravass preexisting

equity holders owning approximately

77%.}

_{Basis of

Presentation}

_{The unaudited pro forma

condensed combined financial statements were prepared in

accordance with the regulations of the Securities and Exchange

Commission (SEC). The unaudited pro forma condensed combined

balance sheet as of March31, 2017 is presented as if the merger

had been completed on March31, 2017. The unaudited pro forma

condensed combined statement of operations for the three months

ended March31, 2017 and for the year ended December31, 2016

assumes that both the merger and Aravass acquisition of Serendex

took place as of January1, 2016, and combines the historical

results of Mast and Savara and the pre-acquisition historical

results of Serendex.}

_{Based on the terms of the

merger, Aravas is deemed to be the acquiring company for

accounting purposes and the merger will be accounted for under

the acquisition method of accounting in accordance with the

provisions of Accounting Standards Codification 805, Business

Combinations. Accordingly, assets and liabilities of Aravas will

be recorded as of the merger closing date at their respective

carrying value and assets and liabilities of Savara will be

recorded as of the merger closing date at their respective fair

values. Under the acquisition method of accounting for the

purpose of these unaudited pro forma financial statements,

management of Aravas and Savara have determined a preliminary

estimated purchase price, calculated as described in Note 2 to

these unaudited pro forma condensed combined financial

statements. The net tangible assets acquired and liabilities

assumed in connection with the transaction are at their estimated

acquisition date fair values. A final determination of these

estimated fair values will be based on the actual net tangible

assets of Savara that exist as of the date of completion of the

transaction.}

_{To the extent there are

significant changes to the business following completion of the

merger, the assumptions and estimates set forth in the unaudited

pro forma condensed combined financial statements could change

significantly. Accordingly, the pro forma purchase price

adjustments are subject to further adjustments as additional

information becomes available and as additional analyses are

conducted following the completion of the merger. There can be no

assurances that these additional analyses will not result in

material changes to the estimates of fair

value.}

_{2. Preliminary

Purchase Price}

_{The preliminary estimated

purchase price of the merger is $34.0million using Savaras share

price for its common stock and its common shares outstanding as

of the close of business on April27, 2017. Note that in a reverse

merger, the purchase consideration determined under USGAAP will

be based on the market capitalization of Savara on the date of

the merger. The estimated fair value of the net assets acquired,

excluding goodwill is $12.6million.}

₂₂

_{Management of Aravas has

preliminarily concluded the proposed merger is a business

combination and will apply the acquisition method of accounting.

Under the acquisition method of accounting, the total purchase

price is allocated to the acquired tangible and intangible assets

and assumed liabilities of Savara based on their estimated fair

values as of the proposed merger closing date. The excess of the

purchase price over the fair value of assets acquired and

liabilities assumed, if any, is allocated to goodwill. To the

extent the actual purchase price varies from the estimated

purchase price used in these unaudited pro forma condensed

combined financial information, the impact will be an increase or

decrease in goodwill.}

_{The preliminary allocation of

the estimated total purchase price of the proposed merger is as

follows (in thousands):}


Fair value of Savara net assets to carry over to merged company	$	12,634
Goodwill		21,401

Total purchase consideration	$	34,035

_{The preliminary estimated fair

values of the acquired assets and assumed liabilities of Savara

as of March31, 2017 is as follows (in

thousands):}


Net tangible assets (liabilities)	$	(148	)
In-process research and development intangible asset, net of deferred tax liability		12,782

Estimated fair value of net assets acquired	$	12,634

_{The allocation of the

estimated purchase price is preliminary. The purchase price

allocation will remain preliminary until Aravass management

determines the fair values of assets acquired and liabilities

assumed. The final determination of the purchase price allocation

is anticipated to be completed as soon as practicable and will be

based on the fair values of the assets acquired and liabilities

assumed as of the merger closing date. The final amounts

allocated to assets acquired and liabilities assumed could differ

significantly from the amounts presented in the unaudited pro

forma condensed combined financial

statements.}

_{3. Pro Forma

Adjustments}

_{Pro forma adjustments are

necessary to reflect the acquisition consideration exchanged and

to adjust amounts related to the tangible assets and liabilities

of Savara to reflect the preliminary estimate of their fair

values, and to reflect the impact on the statements of operations

of the merger as if the companies had been combined during the

periods presented therein. The pro forma adjustments included in

the unaudited pro forma condensed combined financial statements

are as follows:}

To reflect the elimination of Savaras historical stockholders
equity balances, including accumulated deficit, and to
reflect the adjustments to the fair value of Savaras net
assets recorded in the preliminary allocation of the
estimated total purchase price, at the close of the merger
referred to in Note 2 above.


Elimination of Savaras accumulated deficit	$	(316,942	)
Fair value adjustment to intangible assets (see G below)		18,803
Fair value adjustment to goodwill (see H below)		18,394
Adjustment to deferred tax liability (see I below)		(7,526	)

Total	$	(287,271	)

₂₃

To reflect the reclassification Aravass par value of common
stock and additional paid-in capital in connection with the
exchange of Aravass common stock for Savaras common stock.

To reflect the conversion of Aravass redeemable convertible
preferred stock to Aravas common stock and then into shares
of Savara common stock.

To record $.4million of estimated transaction costs that were
not incurred as of March31, 2017.

To record $1.9million of severance liabilities in relation to
termination of employees of Savara upon consummation of the
merger.

To reflect the conversion of $4.3million in aggregate
principal of, and accrued interest on, Aravass convertible
notes into approximately 1.1million shares of Aravas common
stock and then into shares of Savara common stock and to
reflect the elimination of the put option (redemption
feature) on Aravass convertible notes.

To record intangible assets acquired in the merger and
eliminate Savaras historical intangible assets.


To record intangible assets acquired in the merger	$	21,303
To eliminate historical Savara intangible assets		(2,500	)

Total	$	18,803

To record goodwill as a result of the merger and eliminate
Savaras historical goodwill.


To record goodwill acquired in the merger	$	21,401
To eliminate historical Savara goodwill		(3,007	)

Total	$	18,394

To eliminate Savaras deferred tax liability related to prior
acquisitions that arose from amortizing, for tax purposes,
intangible assets from business combination transactions
prior to this merger and record deferred tax liability
related to the merger (assumes a 40% tax rate applied to
intangible assets acquired).


To record net deferred tax liability related to the merger	$	8,521
To eliminate deferred tax liabilities related to Savaras intangible assets from prior acquisitions		(995	)

Total	$	7,526

To eliminate nonrecurring transaction costs of $3.7million
and $0.6million incurred during the three months ended
March31, 2017 and the year ended December31, 2016,
respectively, that are directly related to the merger.

The net increase to debt reflects the new debt of $7.5million
incurred to finance the acquisition of Savara, less the
effects of extinguishing Savaras outstanding debt of
$3.5million upon consummation of the acquisition.


To record the decrease for extinguishment of existing Savara debt	$	(3,513	)
To record the increase for issuance of new debt		7,500

Total	$	3,987

_{Represents the net increase to

interest expense resulting from interest on the new debt to

finance the merger and extinguish its existing debt as

follows:}


	Threemonths endedMarch31, 2017			Year ended December31, 2016
To eliminate interest expense and amortization of debt issuance costs on outstanding Savara debt	$	(178	)		$	(2,053	)
To record the interest expense on new WSJ prime 4.25% debt

Total	$	(21	)		$	(1,424	)

₂₄

_{4. Serendexs

Historical Financial

Statements}

_{Schedule

1}

_Serendex

_{Statements of

Operations}

_{For the Period from

January1, 2016 to July14,

2016}


	January1,2016 toJune30,2016 (1) (2)			July1,2016 toJuly14,2016 (1)		USGAAP Adjustments			As Converted to USGAAP
	DKK			DKK		DKK			DKK		USD
Grant revenue							(704	)		(a)				$
Operating expenses
Product development		6,034			3,336		18,014			(a)(b)		27,384			4,102
General and administrative		12,954			4,834							17,788			2,665

Total operating expenses		18,988			8,170		18,014					45,172			6,767

Loss from operations		(18,284	)		(8,170	)	(18,718	)				(45,172	)		(6,767	)
Interest and other income (expense), net		(328	)		(59	)						(387	)		(58	)

Net loss		(18,612	)		(8,229	)	(18,718	)				(45,559	)	$	(6,825	)

(1)	Amounts derived from Serendexs accounting records in accordance with the IFRS as issued by the IASB and have been reclassified to be consistent with the manner in which items are classified in Aravas consolidated statement of operations and comprehensive loss.

(2)	Amounts derived from Serendexs historical unaudited condensed financial statements for the six months ended June30, 2016.

_{USGAAP Adjustments to

Serendexs Historical Financial

Statements}

_{On July15, 2016, Aravas

completed the acquisition of Serendex through its wholly-owned

subsidiary, Savara ApS. Serendex prepared its financial

statements in accordance with the IFRS as issued by the IASB.

Included in Schedule 1 above are the USGAAP adjustments to

Serendexs historical financial statements for the period from

January1, 2016 to July14, 2016.}

_{(a) Revenue

recognition}

In accordance with the IFRS as issued by the IASB, revenue
generated from sales of active pharmaceutical ingredient
(API) to vendors associated with clinical trial studies is
recognized as net revenue on the financial statements.

ii.

Under USGAAP, revenue generated from sales of API to vendors
associated with clinical trial studies would be considered
contra-RD expenses as those revenues were not generated due
to commercialized sales to customers.

_{(b) Research and

development costs-

capitalization}

In accordance with the IFRS as issued by the IASB, research
and development costs directly and indirectly attributable to
development of new products are capitalized as in-process RD.

ii.

Under USGAAP, research and development costs are expensed as
incurred.

₂₅

_{Translation of

Serendexs Historical Financial Statements to US

Dollars}

_{The unaudited pro forma

condensed combined financial information is presented in US

dollars unless otherwise stated, and accordingly, the financial

information of Serendex used to prepare the unaudited pro forma

condensed combined financial information was translated from

Danish Krone to US dollars (Schedule 1) using the following

exchange rates, which correspond with the exchange rates for the

periods being presented:}

_{Statement of operations for

the period from January1, 2016 to July14, 2016 (pre-acquisition

period): Average for Period 1 =

US$.1498}

₂₆

About SAVARA INC. (NASDAQ:SVRA)

Savara Inc., formerly Mast Therapeutics, Inc., is a clinical-stage pharmaceutical company. The Company is focused on the development and commercialization of novel therapies for the treatment of patients with rare respiratory diseases. Its pipeline includes AeroVanc, Molgradex and AIR001. AeroVanc is an inhaled formulation of vancomycin, which the Company is developing for the treatment of persistent methicillin-resistant Staphylococcus aureus, lung infection in cystic fibrosis patients. Molgradex is an inhaled formulation of recombinant human granulocyte-macrophage colony-stimulating factor. It is developing Molgradex for the treatment of autoimmune pulmonary alveolar proteinosis, a rare lung disease. AIR001 is a sodium nitrite solution for inhalation via nebulization. AIR001 is in Phase II clinical development for the treatment of heart failure with preserved ejection fraction, also known as diastolic heart failure or heart failure with preserved systolic function.

SAVARA INC. (NASDAQ:SVRA) Recent Trading Information

SAVARA INC. (NASDAQ:SVRA) closed its last trading session up +0.45 at 5.16 with 74,350 shares trading hands.

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