vTv Therapeutics Inc. — Q3 2019 Form 10-Q
Business context and period. Clinical-stage biopharmaceutical company developing oral small-molecule drug candidates. This unaudited report covers the three and nine months ended September 30, 2019; financial amounts below are in U.S. dollars unless noted. The company has no product sales and earns collaboration and license revenue. Its lead programs are TTP399 for type 1 diabetes and azeliragon for mild Alzheimer’s disease in patients with type 2 diabetes.
Financial performance and liquidity
| Metric | Q3 2019 | Q3 2018 | Nine months 2019 | Nine months 2018 |
|---|---|---|---|---|
| Revenue | $8,000 | $3.375 million | $2.757 million | $7.912 million |
| Research and development | $3.663 million | $2.698 million | $10.713 million | $20.235 million |
| General and administrative | $1.770 million | $2.158 million | $6.548 million | $7.150 million |
| Operating loss | $5.425 million | $1.481 million | $14.504 million | $19.473 million |
| Net loss before noncontrolling interest | $5.960 million | $1.961 million | $15.056 million | $21.517 million |
| Net loss attributable to vTv Therapeutics Inc. | $3.608 million | $796,000 | $8.645 million | $6.820 million |
| Net loss per Class A share attributable to common shareholders | $(0.13) | $(0.06) | $(0.46) | $(0.64) |
Revenue is from license and collaboration obligations and milestones, not product sales. No meaningful product gross margin is reported. Q3 operating loss widened as revenue fell sharply and R&D spending increased. Nine-month operating loss narrowed, but parent-attributable loss increased, in part reflecting a $4.235 million deemed distribution to a related party included in the common-shareholder loss calculation.
- Cash and liquidity: September 30 cash and cash equivalents were $2.436 million; an additional $2.5 million was restricted as collateral under the loan agreement. Current assets were $3.567 million versus current liabilities of $14.462 million. Long-term investments were $2.480 million and deposits totaled $695,000.
- Cash flow: Nine-month operating cash use was $17.142 million, compared with $20.987 million in 2018. Investing activities provided $310,000; financing activities provided $17.585 million, including $19.5 million from related-party letter agreements and $5.443 million from a registered direct offering, offset partly by $7.858 million of debt repayments.
- Debt: Notes payable totaled $8.805 million, of which $7.442 million was current. The secured loan bears a floating rate of 10.5% plus any one-month LIBOR amount above 0.5%; scheduled maturities are in 2020. The loan is secured by substantially all assets, including intellectual property, and requires at least $2.5 million in a pledged cash account.
- Equity and ownership: Class A shares outstanding were 35.4 million at quarter-end; Class B shares were 23.1 million. MacAndrews affiliates held approximately 81.9% of combined voting power. Letter agreements provide remaining equity funding capacity, but may cause dilution.
Material changes versus prior period
- Q3 revenue fell from $3.375 million to $8,000 as the license technology-transfer service periods had ended. Nine-month revenue declined 65%, from $7.912 million to $2.757 million; 2019 included a $1.0 million Newsoara development milestone.
- Q3 R&D increased 35.8%, primarily from azeliragon trial startup costs, partly offset by lower personnel costs following restructuring. Nine-month R&D declined 47.1%, mainly because the STEADFAST and related extension studies ended in 2018; new Elevage and TTP399 trial costs partly offset the reduction.
- Debt and interest expense declined with scheduled repayments. Nine-month interest expense was $1.544 million versus $2.547 million.
- The company completed its workforce reduction and restructuring in Q2 2019, shifting toward external resources for development. Lease accounting adoption in 2019 added operating-lease assets and liabilities.
Outlook, risks and unusual items
- Going concern: Management stated that $2.4 million of cash and $8.0 million available under letter agreements at September 30 were expected to fund operations only into Q4 2019. The filing says these conditions raise substantial doubt about the company’s ability to continue as a going concern. Additional financing is required; timing and availability are uncertain. On October 24, 2019, MacAndrews purchased an additional $2.0 million of shares under the September agreement.
- Clinical outlook: Enrollment in Part 2 of the Phase 2 TTP399 Simplici-T1 study was complete; topline results were expected in Q1 2020. The company reported positive Part 1 results, including a 0.7 percentage-point HbA1c improvement versus placebo (p=0.03), but the reported treatment group was small (n=8) and these findings are not confirmation of later trial outcomes. The Elevage sequential Phase 2/3 study of azeliragon was screening/enrolling; Phase 2 topline results were expected in late 2020 or early 2021. Phase 2 plans to enroll about 100 patients; the planned Phase 3 about 200, with design potentially adapting to Phase 2 results.
- Management expected R&D expenses to increase as TTP399 development and Elevage continued, subject to funding. The company has not generated product revenue or achieved profitability and expects continuing losses.
- Financing alternatives may include equity investments or public offerings, with potential dilution; inability to raise funds could delay, reduce or end development programs. Trial execution, patient enrollment, regulatory outcomes, intellectual property, competition and licensing economics are key uncertainties.
- Potential obligations include up to $115 million in Novo Nordisk development and regulatory milestones, up to $75 million in sales milestones and tiered mid-single-digit royalties if applicable products reach approval and sales milestones; these are contingent, not current recorded debt. The Huadong arrangement also requires a contribution of up to $3 million toward a Phase 2 trial.
- No material legal proceedings or defaults upon senior securities were reported. The filing reported effective disclosure controls and no material change to internal control over financial reporting during the quarter.
Most important facts for investors to verify
- Whether new financing was secured in time to fund operations beyond the stated Q4 2019 runway, and the remaining capacity and exercise terms under MacAndrews agreements.
- Topline and complete results from TTP399 Part 2, including safety, efficacy and durability relative to the positive but small Part 1 analysis.
- Enrollment, cost, timing and results for the azeliragon Elevage Phase 2 study and any resulting Phase 3 design decision.
- Near-term debt maturities, repayment obligations, pledged-cash requirement and the company’s ability to maintain required liquidity.
- Potential dilution and governance implications of related-party financing, given MacAndrews’ voting control and the number of shares issued under prior agreements.