Business context and reporting period
Vital Therapies, Inc. filed this unaudited Form 10-Q for the quarter ended March 31, 2019. The filing predates the proposed name change to Immunic, Inc.; that change and the shift to Immunic’s chronic inflammatory and autoimmune disease pipeline were conditional on closing the proposed transaction. Vital Therapies had discontinued ELAD development after its Phase 3 VTL-308 trial failed its primary and secondary endpoints and was pursuing strategic alternatives.
Financial performance and position
| Metric | Q1 2019 | Q1 2018 / comparison |
|---|---|---|
| Revenue | No product revenue reported | No product revenue reported |
| Research and development | $0.5 million | $10.2 million; down 95% |
| General and administrative | $2.7 million | $4.3 million; down 38% |
| Severance costs | $6.4 million | None |
| Total operating expenses | $9.6 million | $14.5 million; down 34% |
| Net loss | $9.5 million; $0.22 per share | $14.4 million; $0.34 per share |
| Operating cash flow | $(3.7) million | $(13.1) million |
| Cash and cash equivalents | $9.6 million at March 31 | $13.3 million at December 31, 2018 |
At March 31, 2019, total assets were $10.5 million, current liabilities $1.4 million, and stockholders’ equity $9.0 million. No debt balance was reported. The company had an accumulated deficit of $346.9 million. Cash decreased by $3.7 million during the quarter; investing activities provided $10,000 and there were no financing cash flows. Stock-based compensation was $6.1 million, including a significant charge associated with the CEO’s accelerated RSU vesting.
Material changes versus the prior comparable period
- R&D expense fell by $9.7 million, reflecting cessation of substantially all ELAD development, lower clinical trial activity, reduced staffing and related cost reductions. The quarter also included a $429,000 reduction in accrued clinical trial costs from revised estimates.
- G&A expense declined by $1.6 million, partly offset by a $601,000 increase in legal and accounting costs primarily related to the Immunic transaction.
- Net loss improved by $4.9 million, but included $6.4 million of severance costs. CEO-related amounts included $540,000 severance, estimated COBRA costs of $35,000 and $5.8 million of stock-based compensation.
- Operating cash use declined by $9.3 million year over year, though cash on hand fell $3.7 million from year-end.
Outlook, risks and unusual items
- Proposed Immunic transaction: Immunic shareholders were expected to receive approximately 89% of the combined company, subject to adjustments. A concurrent investment of approximately €26.7 million (about $30.0 million at the stated exchange rate) was expected before closing. Stockholders had approved the share issuance, but other closing conditions remained; completion was not assured.
- ELAD asset sale: An agreement contemplated a sale of certain ELAD assets and related intellectual property for approximately $2.5 million. The assets had a carrying value of $304,000. Closing required additional approvals and conditions. The buyer’s escrow-funding deadline was extended to April 15, 2019, and exclusivity was removed.
- Going concern and funding: Management stated that $9.6 million of cash was expected to cover known liabilities and commitments under current operations, but resource needs could change materially. The filing concludes substantial doubt exists about the company’s ability to continue as a going concern for one year after issuance. Additional funding outside the proposed transaction was described as unlikely; shelf-registration capacity was constrained by public-float limits.
- Listing risk: Nasdaq’s $1.00 minimum bid-price compliance deadline was April 23, 2019. The company sought approval for a reverse split in connection with the transaction; failure to complete the transaction and reverse split by the deadline could result in delisting.
- Alternative if transaction fails: The board could consider dissolution and liquidation. The filing warns that transaction failure could also entail a $500,000 termination fee and up to $275,000 in expense reimbursements, as well as approximately $1.4 million in estimated transaction expenses.
- Other obligations and risks: A $925,000 balance of the Ladenburg transaction fee was payable if a transaction closed. The filing reports no material pending litigation. Management said disclosure controls were effective and reported no material change in internal control over financial reporting during the quarter.
Most important facts for investors to verify
- Whether and when the Immunic exchange and concurrent financing closed, and the final ownership split, financing proceeds and transaction adjustments.
- Whether the ELAD asset sale closed, the amount ultimately received and any remaining obligations or asset rights.
- Cash burn, expected runway and liabilities after any transaction or change in operating plans; the filing does not provide a definitive cash-runway date.
- Nasdaq bid-price compliance, reverse-split status and continued listing.
- The final treatment of executive severance, RSU acceleration and transaction-related fees, and any effects on dilution or cash resources.