Business context and reporting period
vTv Therapeutics Inc. filed this unaudited Form 10-Q for the quarter and six months ended June 30, 2016. The clinical-stage biopharmaceutical company develops orally administered small-molecule drug candidates and has no approved products or product-sale revenue. Its lead programs are azeliragon for Alzheimer’s disease, TTP399 for type 2 diabetes, and TTP273 for type 2 diabetes.
The company consolidates vTv LLC, although it held only a 29.5% economic interest at June 30, 2016; the remaining 70.5% is reported as redeemable noncontrolling interest. Prior-period comparisons reflect predecessor entities combined for presentation.
Key financial metrics
Amounts below are in millions of dollars except per-share data. The filing reports no income tax provision for the periods shown.
| Metric | Three months ended June 30, 2016 | Three months ended June 30, 2015 | Six months ended June 30, 2016 | Six months ended June 30, 2015 |
|---|---|---|---|---|
| Revenue | $0.182 | $0.110 | $0.558 | $0.160 |
| Research and development expense | $12.149 | $5.702 | $23.484 | $13.478 |
| General and administrative expense | $2.672 | $2.297 | $5.253 | $4.292 |
| Operating loss | $(14.639) | $(7.889) | $(28.179) | $(17.610) |
| Net loss before noncontrolling interest | $(14.617) | $(10.412) | $(28.137) | $(20.225) |
| Net loss attributable to vTv Therapeutics Inc. | $(4.457) | $(10.412) | $(8.309) | $(20.225) |
| Parent-company loss per Class A share | $(0.47) | Not clearly provided | $(0.88) | Not clearly provided |
Revenue came primarily from collaboration and license arrangements, not product sales. Gross margin is not presented and is not meaningful for this pre-commercial company. Two customers accounted for all revenue in the 2016 periods.
- Cash and liquidity: Cash and cash equivalents were $63.841 million at June 30, 2016, down from $88.003 million at December 31, 2015. Current assets were $64.264 million and current liabilities $9.823 million.
- Cash flow: Operating activities used $24.055 million in the first half of 2016, versus $18.154 million in the prior-year period. Investing activities used $0.083 million; financing activities used $0.024 million.
- Debt and liabilities: The balance sheet reports no debt balance; total liabilities were $10.053 million. The company said prior related-party borrowings were not assumed in the reorganization.
- Equity and noncontrolling interest: Stockholders’ deficit attributable to vTv Therapeutics Inc. was $79.520 million; redeemable noncontrolling interest was $136.250 million.
Material changes versus the prior comparable period
- Second-quarter revenue increased $0.072 million year over year; first-half revenue increased $0.398 million, but remained immaterial relative to operating expenses.
- R&D expense increased 113% in the quarter and 74% in the first half. Management attributed the increase mainly to azeliragon clinical-trial activity, manufacturing, and a drug-interaction study, as well as TTP273’s LOGRA study and higher staffing costs.
- G&A expense rose 16% in the quarter and 22% in the first half, driven by public-company staffing, share-based compensation, and transition costs; lower IPO-related legal and professional costs partly offset the increases.
- Operating loss widened in both comparison periods. Consolidated net loss also increased, although the loss attributable to the parent declined because a substantial portion was allocated to noncontrolling interest.
- Cash used in operations increased $5.901 million year over year in the first half, primarily reflecting greater clinical-trial and compound-manufacturing spending.
- Prior-period interest and other expenses tied to legacy capital arrangements did not recur after the IPO reorganization.
Outlook, risks and contingencies
- Management expected continued losses and increasing R&D and G&A spending for at least several years. Based on its operating plan, it believed available cash would fund operations through at least mid-2017, but stated that current cash would not fund completion of the STEADFAST Phase 3 study and that additional capital would be needed.
- The company had no committed external funding source. Potential financing includes debt, equity, collaborations, licensing, and strategic arrangements; these may be unavailable or involve dilution, restrictive terms, or surrender of valuable rights.
- Clinical and regulatory outcomes remain uncertain, including trial progress and enrollment, FDA acceptance of study results, approval timing, commercialization prospects, and intellectual-property protection.
- Potential obligations include Novo Nordisk development and regulatory milestones of up to $115 million, sales milestones of up to $75 million, and royalties. The Calithera license includes potential development and regulatory milestones of up to $30.5 million for the first licensed product, up to $77 million in sales milestones, and royalties. These are contingent amounts, not current balance-sheet debt.
- The company disclosed no material legal proceedings, no material changes in contractual cash obligations, and no off-balance-sheet arrangements. Disclosure controls were assessed as effective as of June 30, 2016.
Important facts for investors to verify
- Whether cash runway and subsequent clinical-trial spending remain consistent with management’s mid-2017 estimate, and the timing and terms of any required financing.
- STEADFAST enrollment, cost, and progress, including the company’s stated need for additional capital to complete the study.
- Clinical updates for TTP399 and TTP273 and any changes in program priorities or spending.
- Revenue concentration, collaboration performance, and whether any milestone or royalty payments become probable or are received.
- The economic and voting effects of the 70.5% redeemable noncontrolling interest, potential unit exchanges, and the related-party tax receivable agreement.