vTv Therapeutics Inc. — Q1 2020 Form 10-Q
Reporting period: Three months ended March 31, 2020; unaudited. vTv is a clinical-stage pharmaceutical company with no product sales, developing drug candidates for metabolic diseases and related conditions.
Financial results and liquidity
| Metric | Q1 2020 | Q1 2019 |
|---|---|---|
| Revenue | $8,000 | $921,000 |
| Research and development expense | $4.204 million | $2.822 million |
| General and administrative expense | $2.450 million | $2.386 million |
| Operating loss | $6.646 million | $4.287 million |
| Net loss before noncontrolling interest | $7.165 million | $3.982 million |
| Net loss attributable to vTv | $4.724 million | $2.155 million |
| Net loss per Class A share | $0.11 | $0.26 |
| Net cash used in operating activities | $5.560 million | $5.450 million |
Revenue is not material for assessing operating margins; the company has no product revenue. The 2019 per-share loss included a $3.7 million deemed distribution to a related party, helping explain why common-shareholder loss exceeded the loss attributable to vTv that quarter. Q1 2020 R&D increased 49%, primarily due to higher azeliragon/Elevage clinical trial costs. Interest expense fell to $168,000 from $626,000, reflecting lower loan balances.
At March 31, cash and cash equivalents were $406,000, with $2.5 million of restricted cash pledged under the loan agreement; total cash, cash equivalents and restricted cash were $2.906 million. Total assets were $7.389 million and total liabilities $17.014 million. Notes payable were $4.408 million, all classified as current. The company reported an accumulated deficit of $252.7 million and a stockholders’ deficit of $61.821 million. It also had $2.480 million in long-term investments and $1.056 million in contract liabilities.
Material changes and financing
- Compared with Q1 2019, revenue declined by $913,000 as the Reneo license technology-transfer revenue recognized in 2019 had been fully recognized by March 2020.
- On March 31, 2020, redeemable noncontrolling interest was $52.196 million, up from $40.183 million at year-end, primarily reflecting a $14.454 million increase in redemption value.
- vTv issued 3.75 million Class A shares to related party MacAndrews under a letter agreement for $6.0 million. At quarter-end, 2.5 million shares remained available under the December 2019 agreement at $1.60 per share.
- After quarter-end, an April 1 loan amendment extended maturities to August 1, 2020 and January 1, 2021, temporarily waived the minimum cash requirement through June 30, and required interest-only payments through June. Principal payments resume in July; the second tranche’s final payment increased to $0.6 million.
- On April 24, vTv established an at-the-market offering allowing it to sell up to $13 million of Class A shares, subject to a commission of up to 3%. The company was not obligated to sell shares under the agreement.
Outlook, commentary and risks
- Management stated there is substantial doubt about vTv’s ability to continue as a going concern. The notes estimate existing cash and remaining letter-agreement funding would support operations into June 2020; the later MD&A estimate extends to September 2020 if the ATM offering is fully used. These estimates depend on uncertain financing and operating assumptions.
- The company anticipated continuing losses and significant R&D spending, and said additional financing is required to complete planned trials and continue operations. Potential sources include equity offerings, the ATM facility, direct investment and partnerships; timing and availability were uncertain. Equity financing could dilute shareholders.
- Pipeline priorities include TTP399 for type 1 diabetes and azeliragon for mild Alzheimer’s disease in patients with type 2 diabetes. vTv reported positive Phase 2 results for TTP399 in February 2020 and had requested FDA input on next-stage development. It expected some Elevage Phase 2 topline results in the first half of 2021, while acknowledging COVID-19 could delay enrollment and results.
- COVID-19 had not significantly affected Q1 financial results, but clinical-site disruptions, enrollment delays, supplier or partner interruptions, and difficulties raising capital could affect future operations and license-related milestone receipts.
- Other significant exposures include potential Novo Nordisk development and regulatory milestones of up to $115 million, sales milestones of up to $75 million, and tiered royalties; vTv may also have to contribute up to $3 million to the Huadong Phase 2 multi-region trial if required. The timing, or whether that trial begins, remains indeterminate.
- MacAndrews affiliates controlled approximately 84.4% of combined voting power at quarter-end. Loan obligations are secured by substantially all company assets, including intellectual property subject to limited exceptions; default could accelerate repayment and add default interest.
Key facts for investors to verify
- Actual cash runway and financing raised or shares sold under the MacAndrews agreements and $13 million ATM facility.
- Compliance with loan terms, upcoming principal and final payments, and the minimum-cash requirement after June 30, 2020.
- Whether COVID-19 affected Elevage enrollment and the timing of the expected first-half 2021 results.
- FDA feedback and the development plan, costs and funding for TTP399 and azeliragon trials.
- Progress or changes in partner programs, potential milestones, and the possible Huadong trial obligation.