Business context and reporting period
vTv Therapeutics Inc. filed this Form 10-K for the fiscal year ended December 31, 2016. It is a clinical-stage biopharmaceutical company with no approved products and no product-sales revenue. Its lead program, azeliragon, was in Phase 3 development for mild Alzheimer’s disease; TTP399 and TTP273 completed Phase 2 studies for type 2 diabetes.
Financial performance and liquidity
| Metric | FY 2016 | FY 2015 |
|---|---|---|
| Revenue | $0.6 million | $0.5 million |
| Research and development expense | $45.7 million | $29.6 million |
| General and administrative expense | $9.9 million | $9.1 million |
| Operating loss | $55.0 million | $38.1 million |
| Consolidated net loss before noncontrolling interest | $55.4 million | $41.1 million |
| Net loss attributable to vTv Therapeutics Inc. | $16.4 million | $27.5 million |
| Cash used in operating activities | $48.2 million | $36.9 million |
| Cash and cash equivalents at year-end | $51.5 million | $88.0 million |
Revenue was primarily collaboration and license-related, principally from Calithera; the filing reports no product-sales revenue. Profit margins are not meaningful for this loss-making, pre-commercial company. At year-end, current assets were $52.1 million, current liabilities $11.4 million, and working capital $40.7 million. Total liabilities were $22.9 million.
Debt principal outstanding was $12.5 million under a venture loan; its balance-sheet carrying value was $11.1 million after debt discount. The loan bears floating interest of 10.5% plus any one-month LIBOR amount above 0.5%; the stated effective annual rate, including fees and final payment, was 17.7%. The loan is secured by substantially all assets other than intellectual property, subject to specified conditions. The company also had a $122.5 million redeemable noncontrolling interest.
Material changes versus the prior comparable period
- R&D expense rose $16.2 million, or 54.6%, mainly because azeliragon Phase 3 trial costs increased. The company cited higher enrollment and trial activity, supporting studies, and drug manufacturing.
- Operating cash use increased by $11.3 million, primarily reflecting higher azeliragon clinical-trial spending.
- Year-end cash fell $36.5 million. The $12.5 million first loan tranche partly funded operations; FY 2015 cash had been substantially boosted by the IPO.
- Although the loss attributable to vTv decreased, consolidated net loss increased. The difference reflects the allocation of a larger net loss to noncontrolling interests, not an improvement in operating results.
Outlook, management commentary, risks and unusual items
- Management expected existing cash and funds available under the loan agreement to fund operations through the first quarter of 2018, when it expected Phase 3 azeliragon sub-study A results. It also said those resources would not be sufficient to complete the STEADFAST study and development of azeliragon, and that additional capital or partnering would be needed.
- The loan allowed potential additional tranches of $7.5 million and $5.0 million, subject to conditions. The third tranche also required an executed term sheet for licensing or purchase of a lead drug candidate. The filing describes these as available funding, not guaranteed proceeds.
- STEADFAST is an FDA-agreed Special Protocol Assessment (SPA) study. Sub-study A completed enrollment in September 2016; topline results were expected in early 2018. Sub-study B enrollment was expected to finish in June 2017, with results expected in the second half of 2018. A SPA does not guarantee approval.
- In the earlier azeliragon Phase 2b study, the 20 mg dose was discontinued after safety and cognitive concerns. The company reported favorable later analyses for the 5 mg dose, while noting an interim futility recommendation and that the study was discontinued. Phase 3 efficacy and safety remained unproven.
- The company reported that TTP399 met its primary HbA1c endpoint at the 800 mg dose in the six-month AGATA study. In the 12-week LOGRA study, TTP273’s placebo-subtracted HbA1c differences were -0.86 and -0.71 percentage points for once- and twice-daily dosing; the company said it was continuing to analyze full results.
- Management planned to pursue partnerships for azeliragon commercialization and for further development and potential commercialization of the diabetes programs. No such future partnership funding was assured.
- Key risks include clinical failure or delay, additional capital needs and potential dilution, conditional borrowing availability, restrictive debt covenants and high borrowing costs, reliance on third-party trial and manufacturing providers, and the absence of commercial infrastructure. MacAndrews & Forbes held approximately 77.7% of combined voting power. The company reported no material legal proceedings.
- The independent auditor issued an unqualified opinion on the financial statements. Management reported effective disclosure controls; the 10-K did not include management’s assessment or auditor attestation on internal control over financial reporting due to a transition-period exemption.
Important facts for investors to verify
- Whether STEADFAST sub-study results met endpoints and safety requirements, and whether timing or FDA requirements changed.
- Actual cash runway and operating cash burn, including the timing and conditions for any additional loan tranches or external financing.
- Whether diabetes-program partnerships were secured, and the complete results and durability and safety data from AGATA and LOGRA.
- The debt’s interest, collateral, covenant and default terms, including consequences if borrowing conditions are not met.
- Potential dilution and control implications from Class B/vTv Unit exchanges, lender warrants, equity awards, and MacAndrews & Forbes’ voting control.