vTv Therapeutics Inc. — Q1 2016 Form 10-Q
Reporting period: Three months ended March 31, 2016. Financial statements are unaudited. Unless otherwise stated, amounts below are in millions of dollars.
Business context and operating progress
vTv is a clinical-stage biopharmaceutical company developing orally administered small-molecule drug candidates. It has no approved products and has generated no product-sale revenue. Its lead programs are azeliragon for Alzheimer’s disease and TTP399 and TTP273 for type 2 diabetes. During the quarter, azeliragon’s Phase 3 STEADFAST study was enrolling patients; enrollment in the TTP399 Phase 2b AGATA study was complete; and enrollment began in the TTP273 Phase 2 LOGRA study in January 2016.
After its August 2015 IPO and reorganization, vTv Therapeutics Inc. is a holding company that consolidates vTv LLC. Other holders owned a 71.5% economic interest in vTv LLC at quarter-end, reflected as redeemable noncontrolling interest.
Financial results and liquidity
| Metric | Q1 2016 | Q1 2015 | Change / context |
|---|---|---|---|
| Revenue | $0.376 | $0.050 | Increase of $0.326; primarily collaboration/license-related, not product sales |
| Research and development expense | $11.335 | $7.776 | Up $3.559, or 45.8% |
| General and administrative expense | $2.581 | $1.995 | Up $0.586, or 29.4% |
| Total operating expenses | $13.916 | $9.771 | Up $4.145 |
| Operating loss | $(13.540) | $(9.721) | Loss widened |
| Net loss before noncontrolling interest | $(13.520) | $(9.813) | Loss widened by $3.707 |
| Net loss attributable to vTv Therapeutics Inc. | $(3.852) | $(9.813) | 2016 reflects $9.668 of net loss allocated to noncontrolling interest; not an improvement in consolidated results |
| Basic and diluted loss per Class A share | $(0.42) | Not provided | 2015 per-share comparison is not presented in the filing table |
| Cash and cash equivalents | $75.501 at March 31 | $88.003 at Dec. 31, 2015 | Quarter-end cash decreased $12.502 |
| Operating cash flow | $(12.502) | $(9.366) | Higher use primarily reflected clinical-trial and manufacturing spending |
Operating expenses exceeded revenue substantially; a meaningful gross margin comparison is not applicable to this development-stage business. The company reported no income tax provision. Current assets were $77.053 million and current liabilities were $8.674 million at March 31, 2016. Total liabilities were $8.911 million; the balance sheet showed no material debt. Redeemable noncontrolling interest was $133.670 million, and stockholders’ deficit attributable to vTv Therapeutics Inc. was $63.022 million.
Material changes and unusual items
- R&D spending rose mainly because of azeliragon clinical-trial and manufacturing costs, including initiation of a drug-interaction study and continued STEADFAST enrollment; TTP273 costs increased with the LOGRA study. The company also cited higher personnel costs supporting trials.
- G&A increased with added public-company personnel and share-based compensation, partly offset by lower legal and professional expenses than during the 2015 IPO preparation period.
- Share-based compensation was $0.607 million in Q1 2016. The company reported $5.8 million of unrecognized stock compensation expected to be recognized over a weighted-average 2.4 years.
- The $16.981 million decrease in the recorded redemption value of noncontrolling interest was reflected in stockholders’ deficit, not as operating cash flow. A corresponding 192,573 Class B shares and vTv units were exchanged for Class A shares during the quarter.
- Q1 2015 included $8.8 million of related-party borrowing and pre-IPO-related expense items; those borrowings and certain related obligations were not assumed in the reorganization.
Outlook, risks, and contingencies
Management stated that existing cash was expected to fund operations and capital requirements through at least mid-2017, while also warning that available cash might not be sufficient to complete STEADFAST or develop and commercialize azeliragon. The company expects continued losses and rising expenses for at least several years and anticipates needing additional capital. No committed external funding source was identified. Potential financing through equity, debt, collaborations, alliances, or licensing could dilute shareholders, impose restrictive terms, or require surrendering valuable rights.
Key uncertainties include clinical-trial results and enrollment, regulatory requirements and approvals, development costs and timing, intellectual-property protection, and the ability to secure funding. The company reported no material legal proceedings, no material changes in contractual cash obligations, and no off-balance-sheet arrangements. Potential contractual payments include up to $115 million in developmental and regulatory milestones under the Novo Nordisk license, up to $75 million in sales milestones, and royalties; these are contingent, not current debt. A tax receivable agreement could require payment of 85% of certain realized or deemed tax savings after qualifying transactions; no related liability was recognized at quarter-end.
Management concluded disclosure controls and procedures were effective as of March 31, 2016. It noted that controls provide reasonable, not absolute, assurance.
Important facts for investors to verify
- Whether the company’s cash runway and stated mid-2017 funding horizon remain consistent with actual trial spending and development plans.
- STEADFAST progress, enrollment, results, and the FDA’s acceptance of the study as a basis for azeliragon approval.
- Clinical progress and costs for TTP399 and TTP273, and any changes to development timelines or funding needs.
- The source, terms, and dilution or strategic consequences of any additional financing or collaboration.
- Changes in redeemable noncontrolling interest, unit exchanges, and the related effect on reported parent-company earnings per share.