vTv Therapeutics Inc. — Q3 2018 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2018. vTv is a clinical-stage biotechnology company with no product-sale revenue; reported revenue is primarily from licensing and collaboration arrangements.
Financial performance and position
| Metric | Q3 2018 | Q3 2017 | Nine months 2018 | Nine months 2017 |
|---|---|---|---|---|
| Revenue | $3.4 million | $15,000 | $7.9 million | $58,000 |
| Research and development | $2.7 million | $9.0 million | $20.2 million | $29.6 million |
| General and administrative | $2.2 million | $2.6 million | $7.2 million | $8.4 million |
| Operating loss | $1.5 million | $11.5 million | $19.5 million | $37.9 million |
| Consolidated net loss | $2.0 million | $12.4 million | $21.5 million | $40.1 million |
| Net loss attributable to vTv Therapeutics Inc. | $0.8 million | $3.7 million | $6.8 million | $11.8 million |
| Loss per Class A share | $0.06 | $0.38 | $0.64 | $1.22 |
- Cash and liquidity: At September 30, cash and cash equivalents were $3.8 million; a further $2.5 million was restricted under the loan agreement. The company also reported $5.0 million of remaining availability under related-party letter agreements. Management expected available resources to fund operations only into December 2018.
- Cash flow: Nine-month operating cash use was $21.0 million, compared with $38.2 million in 2017. Investing cash flow was immaterial. Financing provided $12.8 million, including $15.0 million from Class A share sales to MacAndrews, offset partly by $2.7 million of debt repayment.
- Debt: Notes payable totaled $18.2 million, of which $9.6 million was current. The loan bears a floating rate of 10.5% plus any one-month LIBOR amount above 0.5%; substantially all assets, including intellectual property subject to exceptions, secure the borrowing. A $2.5 million minimum cash balance is required.
- Balance sheet: Total assets were $11.1 million and total liabilities were $35.2 million. Accumulated deficit was $189.0 million. Redeemable noncontrolling interest declined to $19.9 million from $131.4 million, principally reflecting a change in its redemption value; this was not operating income.
Material changes versus the prior comparable period
- Revenue increased largely because of license and collaboration agreements with Huadong, Reneo and Newsoara; the company still had no product-sales revenue. Revenue recognized in the first nine months was $7.9 million.
- R&D expense fell 31.6% for the first nine months, mainly because azeliragon STEADFAST and open-label-extension activities were discontinued. G&A also declined 14.8%.
- Consolidated net loss narrowed to $21.5 million from $40.1 million for the nine-month period. Lower operating expenses and license revenue contributed; reported results also included a $0.6 million gain from changes in fair value of related-party warrants.
- Debt interest expense rose to $2.5 million from $2.2 million for the nine months, reflecting the higher principal balance during 2018.
Outlook, significant events and risks
- Azeliragon: Both parts of the Phase 3 STEADFAST study failed to meet either co-primary efficacy endpoint. The trials and extension study were discontinued. The FDA advised that efficacy generally should be demonstrated in at least two adequate, well-controlled trials, subject to limited exceptions. The company was evaluating further development with regulators; additional development, if pursued, would require funding and further trials.
- Other programs: TTP399 is in an adaptive Phase 1b/2 study in type 1 diabetes; the Phase 2b type 2 diabetes study is complete. TTP273 is licensed to Huadong, which is developing it; vTv is responsible for a Phase 2 multi-region trial and may contribute up to $3.0 million. The company is seeking partners for GKA, GLP-1r and other programs.
- Going concern: Management stated that current cash and remaining letter-agreement funds were expected to cover needs only into December 2018 and that substantial doubt existed about the company’s ability to continue as a going concern. Additional financing was required; its timing and availability were uncertain, and the STEADFAST failures could make financing more difficult. Failure to secure funds could force reductions or termination of operations.
- Related-party financing: MacAndrews controlled approximately 81.7% of combined voting power. On November 6, 2018, after quarter-end, it purchased another 1,879,699 Class A shares for $2.5 million under the July 2018 letter agreement. This is a subsequent event, not cash received by September 30.
- The company reported no material legal proceedings and stated that disclosure controls were effective as of September 30, 2018. It cautioned that development costs, trial outcomes, regulatory requirements, financing availability and potential dilution are uncertain.
Important facts for investors to verify
- Whether new financing or partnering proceeds were secured after the filing, and the resulting operating runway.
- Cash availability after accounting for restricted cash, debt service and the $2.5 million minimum-cash covenant.
- Regulatory feedback and any decision on further azeliragon development following the failed STEADFAST endpoints.
- Progress, costs and funding responsibilities for TTP399 and the Huadong TTP273 program.
- Terms and potential dilution from remaining letter-agreement share purchases and related warrants.