Business context and reporting period
This is Vital Therapies, Inc.’s unaudited Form 10-Q for the quarter and nine months ended September 30, 2018, filed November 7, 2018. The request metadata names IMMUNIC, INC.; the filing itself identifies Vital Therapies, Inc., so the issuer identity should be verified.
Vital Therapies had no product revenue and was developing its ELAD bio-artificial liver system. In September 2018, its Phase 3 VTL-308 trial in 151 subjects with severe alcoholic hepatitis failed to meet its primary overall-survival endpoint and secondary survivor-proportion endpoint. The company stopped further ELAD development in the U.S. and Europe, cut its workforce by approximately 85%, and began evaluating strategic alternatives, including a merger, acquisition, asset sale, or dissolution and liquidation.
Financial results and condition
| Metric | Q3 2018 | Q3 2017 | Nine months 2018 | Nine months 2017 |
|---|---|---|---|---|
| Revenue | None | None | None | None |
| Research and development expense | $5.989 million | $9.689 million | $24.805 million | $29.151 million |
| General and administrative expense | $2.461 million | $2.950 million | $11.054 million | $8.724 million |
| Total operating expenses | $12.064 million | $12.639 million | $39.473 million | $37.875 million |
| Net loss | $11.941 million | $12.481 million | $39.011 million | $37.490 million |
| Net loss per share | $0.28 | $0.30 | $0.92 | $0.96 |
| Cash used in operating activities | Not provided for quarter | Not provided for quarter | $38.512 million | $30.477 million |
At September 30, 2018, cash and cash equivalents were $17.798 million, down from $56.901 million at December 31, 2017. Total assets were $19.988 million; current liabilities were $5.691 million; and stockholders’ equity was $14.252 million. The filing reports no material debt balance. Nine-month investing cash use was $0.595 million, while financing provided $0.004 million; the comparable 2017 financing inflow was $37.444 million, largely from an equity offering.
Gross margin is not applicable because the company had no revenue. Operating expenses exceeded the prior-year nine-month period by $1.598 million, and net loss increased by $1.521 million. The company reported an accumulated deficit of $334.964 million.
Material changes, outlook, and risks
- Q3 research and development expense fell 38% year over year, mainly as VTL-308 enrollment ended and the company reduced trial-related costs. Nine-month R&D expense fell 15%.
- Nine-month general and administrative expense rose 27%, reflecting compensation, marketing and investor-relations, and legal costs, partly offset by reversals of performance-based stock compensation.
- Q3 included $2.395 million of severance expense and a $1.219 million property-and-equipment impairment charge. The company paid $1.7 million of severance during the quarter and reported $0.704 million unpaid, expected to be paid by the end of Q1 2019.
- The company reduced its clinical-trial accrual by $0.356 million after obtaining subject-specific VTL-308 information. It also reversed $1.7 million of previously recognized performance-option compensation after the trial failed its primary endpoint.
- Management said $17.8 million of cash was expected to cover known liabilities and commitments as of September 30, but warned that needs could change with a strategic transaction and cash could be used sooner than projected. The filing states that ongoing losses and uncertainty about additional funding raise substantial doubt about the company’s ability to continue as a going concern for one year after issuance of the financial statements.
- Management expected significantly lower R&D and G&A costs over at least the next several quarters. There is no assurance that a strategic transaction will be identified or completed; liquidation is a possible outcome.
- Subsequent events: five directors resigned on October 10 to reduce expenses, leaving a four-member board. On October 11, Ladenburg Thalmann was engaged as strategic financial advisor; fees include a $75,000 retainer, a $250,000 opinion fee, and a $1 million transaction fee if a transaction closes. On October 25, Nasdaq notified the company that its bid price had been below $1 for 30 consecutive business days; the compliance deadline was April 23, 2019.
- Key risks include limited liquidity and difficult access to financing after the trial failure, possible dilution or asset liquidation, inability to complete a strategic transaction, loss of key personnel, potential Nasdaq delisting, and potential claims or litigation. The company reported no current litigation it believed would materially affect it and no material changes to contractual obligations during the period.
Most important facts to verify
- Confirm the issuer: the supplied filing is for Vital Therapies, Inc., not IMMUNIC, INC.
- Verify the VTL-308 results and the company’s decision to stop ELAD development in the U.S. and Europe.
- Assess cash runway against severance, lease, wind-down, and strategic-advisory costs; management’s estimate is limited to known liabilities and commitments.
- Track the outcome, costs, and timing of the strategic-alternatives process, including the possibility of dissolution or liquidation.
- Check Nasdaq bid-price compliance by the April 23, 2019 deadline and the company’s ability to raise additional capital.