vTv Therapeutics Inc. — 2017 Form 10-K
Reporting period: Fiscal year ended December 31, 2017. The filing also presents unaudited fourth-quarter results. vTv is a clinical-stage biopharmaceutical company with no approved products and no product-sales revenue; it is developing azeliragon for Alzheimer’s disease and TTP399 and TTP273 for diabetes.
Financial results and position
| Metric | 2017 | 2016 |
|---|---|---|
| Revenue | $0.291 million | $0.634 million |
| Research and development expense | $39.640 million | $45.748 million |
| General and administrative expense | $11.333 million | $9.906 million |
| Operating loss | $50.682 million | $55.020 million |
| Net loss attributable to vTv Therapeutics Inc. | $16.144 million | $16.352 million |
| Loss per share, basic and diluted | $1.67 | $1.71 |
| Cash used in operating activities | $44.560 million | $48.209 million |
- 2017 consolidated net loss before noncontrolling interest was $54.647 million; $38.503 million was attributable to noncontrolling interests. The company-attributable loss was slightly lower than in 2016.
- Fourth-quarter 2017 revenue was $233,000; operating loss was $12.772 million; net loss attributable to vTv was $4.311 million, or $0.44 per share.
- At year-end, cash and cash equivalents were $11.758 million; total cash, cash equivalents and restricted cash were $14.420 million. The balance sheet also included an $8.0 million Huadong receivable, collected in January 2018, and a $2.480 million Reneo investment. Working capital was negative $6.567 million.
- Debt principal was $20.0 million, with $19.587 million reported net of debt discount, including $4.271 million current. The variable cash rate was 10.5% plus any one-month LIBOR excess over 0.5%; the reported effective rate was 17.7%. Debt is secured by substantially all assets other than intellectual property, subject to specified conditions.
- No meaningful commercial margins are reported because the company has no product sales. Revenue is primarily from collaboration and licensing arrangements.
Changes from the prior comparable period
- R&D expense declined $6.108 million, or 13.4%, mainly as the TTP399 AGATA and TTP273 LOGRA trials concluded and certain azeliragon support and manufacturing costs fell. G&A rose $1.427 million, or 14.4%, largely due to compensation and professional fees.
- Interest expense rose to $3.092 million from $0.398 million following the additional $7.5 million loan tranche in March 2017 and a longer period of outstanding borrowings.
- Operating cash use decreased by $3.649 million, but cash and cash equivalents fell by $39.747 million during 2017. Financing provided $7.5 million, versus $11.794 million in 2016.
- December 2017 licensing agreements added potential partner funding and future milestone and royalty opportunities, but most of those amounts are contingent or deferred rather than recognized as 2017 revenue.
Outlook, management commentary and key risks
- Azeliragon: Enrollment was completed in both 400-patient STEADFAST Phase 3 sub-studies under an FDA Special Protocol Assessment. Management expected topline results from sub-study A in April 2018 and sub-study B in early 2019; a U.S. NDA was contemplated for the second half of 2019 if results were favorable. The drug has FDA Fast Track designation, which does not assure approval.
- Diabetes programs: TTP399 met its six-month HbA1c primary endpoint at the 800 mg dose in the Phase 2b AGATA study; an adaptive Phase 1b/2 type 1 diabetes study began in November 2017 with JDRF support. In the Phase 2 LOGRA study, TTP273 showed placebo-subtracted HbA1c differences of -0.86 and -0.71 percentage points for once- and twice-daily dosing, respectively. The company licensed TTP273 in China and certain Pacific Rim markets to Huadong, while retaining a U.S.-inclusive Phase 2 multi-region trial obligation and up to $3 million of associated costs.
- Licensing: Huadong’s agreement provides an $8 million upfront fee, up to $95 million in potential development, regulatory and sales milestones, and tiered royalties; $7.2 million net of withholding taxes remained receivable at year-end. Reneo paid a $3 million upfront fee and granted vTv a minority equity interest, valued at $2.480 million, plus potential milestones of up to $94.5 million and royalties. These potential payments depend on future events and are not assured.
- Funding and going concern: Management said year-end cash, the Huadong receivable and up to $10 million available under a MacAndrews equity commitment were expected to fund operations only through the anticipated April 2018 azeliragon readout. Management and the auditor identified substantial doubt about the company’s ability to continue as a going concern. Additional financing or partnerships are needed; timing and availability are uncertain. Equity financing could dilute shareholders, and development programs may be delayed, reduced or stopped if funds are unavailable.
- Clinical uncertainty: Azeliragon’s earlier Phase 2b study was discontinued following an interim futility recommendation, although subsequent protocol-specified analyses reported positive results at 5 mg. The 20 mg arm was stopped for confusion, falls and cognitive decline; the 5 mg Phase 3 results are not assured. The company also highlights the risks of trial delays, regulatory rejection, safety issues, competition and reliance on third-party manufacturers and collaborators.
- Other obligations and governance: The loan requires a minimum $2.5 million pledged cash balance and includes restrictive covenants. MacAndrews controls approximately 78.3% of voting power and has rights under the equity commitment; the company is a controlled company. A tax receivable agreement may require payment to an affiliate of 85% of certain realized or deemed tax savings.
- The 2017 tax provision was $0.8 million, primarily foreign withholding tax. The Tax Cuts and Jobs Act led to a provisional $5.8 million reduction in deferred tax assets, offset by a valuation allowance; the company reported a full valuation allowance. The auditor issued an unqualified opinion on the financial statements while highlighting the going-concern uncertainty.
Most important facts for investors to verify
- Whether STEADFAST sub-study results met both co-primary endpoints and were consistent with the agreed protocol and analysis plan.
- Actual cash runway after collection of the Huadong receivable, use of the MacAndrews commitment, and required spending on clinical trials and debt service.
- Availability, terms and dilution impact of additional financing or partnerships, and compliance with the loan’s cash covenant and other restrictions.
- Progress, cost and results of the TTP273 multi-region trial and the TTP399 type 1 diabetes study, including the extent of partner/JDRF funding.
- Whether potential licensing milestones and royalties are achieved, and whether the Reneo investment retains its reported value.
- Clinical safety, regulatory, manufacturing and intellectual-property developments that could alter approval timelines or program economics.