vTv Therapeutics Inc. — Q1 2019 Form 10-Q
Reporting period: Three months ended March 31, 2019; filed May 1, 2019. vTv is a clinical-stage biopharmaceutical company with no product sales to date. Amounts below are in U.S. dollars; financial statement amounts are generally in thousands unless stated otherwise.
Financial performance and position
| Metric | Q1 2019 | Q1 2018 |
|---|---|---|
| Revenue | $0.921 million | $2.064 million |
| Research and development expense | $2.822 million | $8.943 million |
| General and administrative expense | $2.386 million | $2.255 million |
| Operating loss | $4.287 million | $9.134 million |
| Net loss before noncontrolling interest | $3.982 million | $9.960 million |
| Net loss attributable to vTv | $2.155 million | $2.952 million |
| Net loss attributable to common shareholders | $5.883 million | $2.952 million |
| Basic and diluted loss per Class A share | $0.26 | $0.30 |
| Net cash used in operating activities | $5.450 million | $5.397 million |
Revenue fell about 55%, primarily because Q1 2018 included Huadong license revenue that was not recognized in Q1 2019. R&D expense decreased 68%, chiefly following the termination of the STEADFAST and open-label extension studies in 2018, with additional savings from restructuring; higher TTP399 study spending partly offset the decline. G&A was broadly stable. The company reported no gross margin measure.
Q1 2019 net loss attributable to common shareholders includes a $3.728 million deemed distribution to related party MacAndrews associated with the March 2019 Letter Agreement. A $0.921 million noncash gain from the change in fair value of related-party warrants also benefited reported results.
At March 31, 2019, cash and cash equivalents were $4.959 million, plus $2.5 million of restricted cash. Long-term investments were $2.480 million. Total assets were $10.736 million; total liabilities were $23.365 million. Notes payable totaled $13.181 million, including $9.167 million current; the loan bears interest at 10.5% plus any one-month LIBOR amount above 0.5%, and is secured by substantially all assets, including intellectual property. The loan requires a minimum $2.5 million pledged cash balance. Accumulated deficit was $220.5 million.
Financing activities provided $8.726 million, including $6.0 million from related-party share issuances and $5.443 million net proceeds from a registered direct offering, partly offset by $2.717 million of debt repayment. Cash, cash equivalents and restricted cash increased $3.276 million during the quarter.
Material changes, outlook and risks
- Management said available cash and the remaining $11.5 million under MacAndrews Letter Agreements were expected to fund operations only into the third quarter of 2019. The filing states that these conditions raise substantial doubt about the company’s ability to continue as a going concern; additional financing is required, and its timing and availability are uncertain.
- The March 2019 Letter Agreement permits vTv, at its option, to sell up to 5,454,546 Class A shares at $1.65 per share for up to $9.0 million during the one-year investment period; MacAndrews also has purchase rights. Additional shares under prior agreements remained available. Further equity financing could dilute shareholders.
- Management expected to begin screening patients in June 2019 for a Phase 2 azeliragon study in mild Alzheimer’s disease patients with type 2 diabetes, targeting top-line results by the end of Q4 2020. The planned Phase 2 is approximately 100 patients; a subsequent approximately 200-patient Phase 3 design may be adapted based on Phase 2 results. vTv also continued the Phase 2 TTP399 trial in type 1 diabetes.
- The company expects R&D expense to increase as these studies progress, subject to funding. Clinical, enrollment, regulatory, intellectual-property and financing uncertainties could increase costs or delay development; no timing for product revenue is provided.
- Two customers accounted for 100% of revenue in both Q1 2019 and Q1 2018. The 45.9% economic interest in vTv LLC is classified as redeemable noncontrolling interest. MacAndrews affiliates controlled approximately 78.6% of combined voting power at quarter-end.
- A $3.0 million contribution toward the Huadong Phase 2 multi-region trial is an obligation, and the Novo Nordisk license includes potential development/regulatory milestones up to $115 million and sales milestones up to $75 million, plus royalties. These are contingent potential payments, not current-period expenses.
- The company initiated a restructuring in December 2018, shifting development toward external resources and reducing staff; it expected headcount reductions and related severance to be completed in Q2 2019. No material legal proceedings were reported.
Important facts for investors to verify
- Whether additional financing was obtained in time to address the disclosed going-concern uncertainty and whether remaining Letter Agreement funding was available on the stated terms.
- Actual cash burn, debt repayments and compliance with the pledged minimum cash requirement, including the loan’s near-term maturities and collateral provisions.
- Progress, enrollment and results for the azeliragon and TTP399 trials, and any changes to planned timing or study design.
- Revenue recognition and customer concentration in collaboration agreements, as well as remaining deferred revenue and trial-funding obligations.
- Effects of related-party financing, share issuance and potential dilution, including MacAndrews’ voting control and the deemed distribution’s impact on per-share results.