vTv Therapeutics Inc. — 2018 Form 10-K Summary
Business context and reporting period
Annual report for the fiscal year ended December 31, 2018, filed February 26, 2019. vTv is a clinical-stage biopharmaceutical company with no approved products and no product-sales revenue. Its leading programs are azeliragon for Alzheimer’s disease and TTP399 and TTP273 for diabetes. All amounts below are in U.S. dollars.
Financial results and liquidity
| Metric | 2018 | 2017 |
|---|---|---|
| Revenue | $12.4 million | $0.3 million |
| Research and development expense | $23.0 million | $39.6 million |
| General and administrative expense | $9.2 million | $11.3 million |
| Operating loss | $19.8 million | $50.7 million |
| Consolidated net loss before noncontrolling interest | $23.8 million | $54.6 million |
| Net loss attributable to vTv Therapeutics Inc. | $7.9 million | $16.1 million |
| Net loss attributable to common shareholders; basic and diluted loss per share | $8.7 million; $0.69 | $16.1 million; $1.67 |
| Net cash used in operating activities | $26.9 million | $44.6 million |
| Cash and cash equivalents at year-end | $1.7 million | $11.8 million |
| Working capital | $(15.4) million | $(6.6) million |
| Debt principal outstanding at year-end | $14.9 million | $20.0 million |
Revenue was mainly recognized from license and collaboration agreements, including Huadong, Reneo and Newsoara; it was not product revenue. The increase reflected recognition of license-related consideration as transfer and research obligations were completed. The company reported no gross margin or product-sales margin; margins are not meaningful for its current business model.
At year-end, $2.5 million of cash was restricted under the loan covenant, in addition to $1.7 million unrestricted cash. Management reported $8.5 million remaining under related-party stock-purchase letter agreements and estimated available liquidity would fund operations into March 2019. The company reported substantial doubt about its ability to continue as a going concern. In February 2019, it exercised a right under the December letter agreement to sell 2,445,651 shares to MacAndrews & Forbes Group for $4.5 million.
Material changes versus the prior period
- Revenue rose by $12.1 million, primarily due to collaboration/license revenue recognition.
- R&D expense fell 41.9%, largely because azeliragon STEADFAST and open-label extension trials were discontinued in April 2018; G&A expense declined 18.6%.
- Operating cash use improved by $17.7 million, but remained substantial. Financing cash flow was $16.6 million, including $21.5 million from related-party stock sales, offset partly by debt repayments.
- Debt principal declined to $14.9 million; $9.383 million of scheduled principal payments were due in 2019. The loan bears a floating rate of 10.5% plus any one-month LIBOR above 0.5%, and the lenders hold a first-priority security interest in intellectual property, subject to exceptions.
Outlook, commentary, risks and unusual items
- Azeliragon: Both parts of the Phase 3 STEADFAST study failed their co-primary efficacy endpoints. A post-hoc analysis of 24 patients with type 2 diabetes suggested benefit, but management acknowledged that the finding may not be replicated. The company began preparations for an adaptive Phase 2/3 study in this subgroup and expected enrollment to begin in mid-2019. FDA guidance indicated efficacy generally should be demonstrated in at least two adequate, well-controlled trials, absent exceptional circumstances.
- Diabetes programs: TTP399 completed the Phase 2b AGATA study, with the 800 mg dose meeting the HbA1c primary endpoint; the company reported no severe hypoglycemia or hyperlipidemia in the treated group. Its type 1 diabetes study was ongoing, with part-one results expected in June 2019. TTP273 completed Phase 2; the 12-week LOGRA study reported placebo-subtracted HbA1c differences of -0.86 and -0.71 percentage points for once- and twice-daily dosing.
- Capital and operations: No formal financial guidance was provided. Management said substantial additional funding was needed for clinical development and was pursuing partnerships and equity financing. In December 2018, the company initiated a restructuring to rely more on external resources, reducing its workforce by approximately 65%; expected severance and related cash charges were approximately $0.8 million.
- Key risks: Continued losses, limited liquidity and going-concern uncertainty; clinical and regulatory failure or delays; dependence on partners, CROs and third-party manufacturers; substantial debt and restrictive covenants; possible dilution from related-party financing and warrants; and MacAndrews & Forbes’ approximately 83.6% combined voting power.
- Other items: The company recorded a $0.1 million impairment charge on property and equipment and a $0.6 million expense from remeasurement of related-party warrants. It notified Columbia University of its intent to terminate a RAGE-related license in December 2018. No material legal proceedings were reported. Management concluded disclosure controls and internal control over financial reporting were effective; the auditor’s report separately highlighted substantial doubt about going concern.
Important facts for investors to verify
- Current cash, restricted cash, remaining availability under the MacAndrews & Forbes agreement, and post-year-end proceeds; compare these with the clinical-trial cash requirements and loan covenants.
- Whether the azeliragon Phase 2/3 protocol, funding and enrollment proceeded as expected, and whether the diabetes subgroup result is reproducible.
- 2019 debt principal and interest payments, covenant compliance, and any changes to the lenders’ intellectual-property security interest.
- Restructuring completion, realized cost savings, severance costs and ability to run trials with a substantially smaller workforce.
- Potential dilution from further related-party stock sales, warrants and exchangeable Class B shares, together with the terms and governance implications of financing.