Business Context and Reporting Period
Company: vTv Therapeutics Inc.
Filing Type: Form 8-K (Current Report)
Date of Report: October 28, 2016
Event: Entry into a Material Definitive Agreement (Venture Loan and Security Agreement).
Key Financial Metrics and Transaction Details
This filing details a new debt facility rather than periodic financial performance metrics (revenue, profit, cash flow). Key terms of the agreement include:
- Total Facility Size: Up to $25.0 million in three tranches ($12.5M, $7.5M, and $5.0M).
- Initial Drawdown: $12.5 million borrowed on October 28, 2016.
- Interest Rate: Floating rate of 10.5% plus the amount by which one-month LIBOR exceeds 0.5%.
- Repayment Terms (Tranche 1): Interest-only monthly payments until May 1, 2018, followed by principal and interest payments through maturity on May 1, 2020. A final payment of $0.8 million is due at maturity.
- Repayment Terms (Tranches 2 & 3): 18 months interest-only, followed by 24 months of principal and interest. Maturity is 42 months from drawdown. Final payments of $0.5 million (Tranche 2) and $0.3 million (Tranche 3) are due at maturity.
- Prepayment Penalty: 4.0% of outstanding balance during the first 18 months after Tranche 2 funding; 2.0% thereafter.
- Collateral: First priority security interest in substantially all assets excluding intellectual property (IP). IP may be pledged subject to Phase 3 clinical trial conditions for azeliragon.
Material Changes and Equity Considerations
The Company issued warrants to the Lenders (Horizon Technology Finance Corporation and Silicon Valley Bank) as part of the financing:
- Initial Warrants: 152,580 shares of Class A common stock issued on October 28, 2016.
- Exercise Price: $6.39 per share (lower of VWAP for 10 days prior or closing price prior to issuance).
- Warrant Value: Aggregate exercise price represents 6.0% of the first tranche principal and 3.0% of the second tranche availability.
- Future Warrants: Additional warrants will be issued upon funding of Tranche 2 (3.0% of principal) and Tranche 3 (6.0% of principal).
- Expiration: Seven years from issuance.
Guidance, Risks, and Covenants
- Covenants: Includes restrictions on dividends, equity distributions, and incurrence of additional debt or liens. No financial maintenance covenants are present.
- Conditions for Tranche 3: Availability is subject to receiving an executed term sheet for the licensing or purchase of a main drug candidate, including upfront and clinical/regulatory milestone payments.
- Default Provisions: Events of default include payment defaults, covenant breaches, and material adverse changes. Default triggers an additional 5% interest rate and immediate acceleration of debt.
- Financial Performance: The filing text does not provide revenue, profit, cash flow, or margin data for the reporting period.
Investor Verification Checklist
- Verify the current status of the Phase 3 clinical trial for azeliragon, as this impacts potential IP collateral requirements.
- Confirm whether the Company has secured the term sheet required to access the third tranche ($5.0 million).
- Review the dilution impact of the initial 152,580 warrants and potential future warrant issuances.
- Assess the Company's cash burn rate against the $12.5 million initial funding to determine runway before the next tranche availability dates (March 31, 2017, and June 30, 2017).
- Monitor compliance with restrictive covenants regarding dividends and additional debt.