vTv Therapeutics Inc. — Q2 2017 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2017; filed August 2, 2017. vTv is a clinical-stage biopharmaceutical company with no approved products and no product-sale revenue. Its lead program is azeliragon for Alzheimer’s disease; other programs include TTP399 and TTP273 for type 2 diabetes.
Financial results and liquidity
| Metric | Q2 2017 | Q2 2016 | Six months 2017 | Six months 2016 |
|---|---|---|---|---|
| Revenue | $13,000 | $182,000 | $43,000 | $558,000 |
| Research and development expense | $9.6 million | $12.1 million | $20.6 million | $23.5 million |
| General and administrative expense | $3.0 million | $2.7 million | $5.8 million | $5.3 million |
| Operating loss | $(12.6) million | $(14.6) million | $(26.4) million | $(28.2) million |
| Net loss before noncontrolling interest | $(13.4) million | $(14.6) million | $(27.7) million | $(28.1) million |
| Net loss attributable to vTv Therapeutics Inc. | $(4.0) million | $(4.5) million | $(8.2) million | $(8.3) million |
| Loss per Class A share | $(0.41) | $(0.47) | $(0.84) | $(0.88) |
At June 30, cash and cash equivalents were $32.5 million, down from $51.5 million at December 31, 2016. Six-month operating cash use was $26.5 million; investing cash use was $39,000; financing provided $7.5 million from borrowing. The filing does not provide a meaningful operating margin given negligible revenue and ongoing development-stage losses.
Total assets were $35.8 million. Notes payable had $20.0 million principal outstanding, with a $19.0 million net carrying amount after debt discount; $521,000 was classified current. The variable-rate loan bears interest at 10.5% plus any one-month LIBOR amount above 0.5%. Total liabilities were $30.0 million. Redeemable noncontrolling interest was $112.1 million, and stockholders’ deficit was $106.4 million.
Material changes versus prior comparable periods
- Revenue declined sharply: management attributed most 2016 revenue to the Calithera license and related research activity; revenue in 2017 was insignificant.
- R&D expense fell 20.8% in Q2 and 12.4% for the first six months. Lower costs followed completion of TTP399’s AGATA study and TTP273’s LOGRA study, and completion of an azeliragon drug-drug interaction study; azeliragon STEADFAST and open-label extension activity partly offset reductions.
- G&A expense rose 12.5% in Q2 and 11.0% for the first six months, primarily due to share-based compensation and professional fees.
- Interest expense increased substantially because of the loan agreement entered into in October 2016. The company borrowed a further $7.5 million in March 2017; the remaining $5.0 million tranche expired unused on June 30, 2017.
- Cash declined by $19.0 million during the first half, while operating cash use was $2.4 million higher than in the first half of 2016.
Outlook, risks, and unusual items
- Management said current cash was expected to fund operations through top-line results for Subpart A of the STEADFAST study in early 2018. Elsewhere, it estimated cash would last less than twelve months from issuance of the statements. The company stated that current resources would not fund completion of STEADFAST and azeliragon development, and that additional capital is required.
- The filing identifies substantial doubt about the company’s ability to continue as a going concern. No additional financing was committed. Management was pursuing potential partnerships for GKA, GLP-1 receptor agonist, and other programs; timing and completion were uncertain.
- Key development risks include clinical results, enrollment and trial timing, FDA acceptance and approval, possible additional studies, commercialization needs, and access to financing. Failure to secure funds could delay, reduce, or eliminate programs.
- The loan is secured by substantially all assets other than intellectual property, although specified conditions relating to the Phase 3 azeliragon trial could require an IP security interest. It has customary covenants and defaults, no financial maintenance covenants, prepayment penalties, and potential additional default interest of 5% after default and applicable cure periods.
- Contractual obligations totaled $26.2 million, including $20.0 million loan principal, estimated $5.7 million loan interest, and $489,000 in operating leases. Interest estimates assume rates remain at June 30 levels.
- The company reported no material legal proceedings and no off-balance-sheet arrangements. Income tax expense was zero; deferred tax assets were subject to a valuation allowance.
Important facts for investors to verify
- Whether STEADFAST Subpart A results arrive in early 2018 and whether the trial supports regulatory review, as well as the results themselves.
- Cash burn, actual runway, and the amount and timing of financing needed to complete STEADFAST and subsequent development.
- Whether proposed partnering or licensing transactions for TTP399, TTP273, or other candidates are completed and on what terms.
- Debt servicing and covenant status, variable-rate interest exposure, and any consequences of the unused third loan tranche expiring.
- How the large redeemable noncontrolling interest and exchange rights affect the parent company’s economic interest and potential dilution.