vTv Therapeutics Inc. — Q3 2016 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2016. vTv is a clinical-stage biopharmaceutical company developing small-molecule drug candidates; it has no approved products and no product sales. Figures below are in millions of dollars unless otherwise noted. The statements are unaudited.
Financial performance
| Metric | Q3 2016 | Q3 2015 | Nine months 2016 | Nine months 2015 |
|---|---|---|---|---|
| Revenue | $0.038 | $0.133 | $0.596 | $0.293 |
| Operating expenses | $13.566 | $9.574 | $42.303 | $27.345 |
| Operating loss | $(13.528) | $(9.441) | $(41.707) | $(27.052) |
| Net loss before noncontrolling interest | $(13.505) | $(9.822) | $(41.642) | $(30.048) |
| Net loss attributable to vTv Therapeutics Inc. | $(3.993) | $(4.103) | $(12.302) | $(24.329) |
| Basic and diluted loss per Class A share | $(0.41) | $(0.49) | $(1.30) | $(3.05) |
Revenue was primarily from the Calithera license and collaboration. Research and development expense, including related-party R&D, was $11.2 million in Q3 and $34.6 million for the nine months. No meaningful operating margin is indicated given minimal revenue and continuing development spending.
Liquidity, cash flow and debt
- Cash and cash equivalents were $51.1 million at September 30, down from $88.0 million at December 31, 2015. Current assets were $52.1 million; current liabilities were $10.6 million.
- Operating cash use was $36.8 million for the nine months, versus $28.0 million in the comparable 2015 period. Investing cash use was $0.1 million; financing cash use was $0.1 million. Cash declined by $36.9 million.
- The September 30 balance sheet reports total liabilities of $10.8 million and no material debt balance identified in the presented statements. A subsequent borrowing is described below.
- Management said existing cash and funds available under the later loan agreement were expected to fund operations through 2017, but would not be sufficient to complete the azeliragon Phase 3 STEADFAST Study. Additional capital will be needed.
Material changes and business developments
- Operating expenses rose as the company expanded clinical development. Nine-month R&D increased $14.0 million, primarily from azeliragon trial costs; G&A increased $0.9 million. The increase in overall nine-month net loss was partly offset in the parent-company-attributable figure by a larger loss allocation to noncontrolling interests.
- Azeliragon is in the Phase 3 STEADFAST Study for Alzheimer’s disease, which had commenced patient enrollment. The study is being conducted under an FDA-agreed Special Protocol Assessment.
- The Phase 2b AGATA study of TTP399 for type 2 diabetes was completed in August 2016. The company reported that the 800 mg arm met the primary endpoint of statistically significant HbA1c change at six months, with a dose-dependent, sustained reduction and favorable tolerability. Detailed secondary endpoint results had not been announced in this filing.
- Enrollment in the Phase 2 TTP273 study was completed in August 2016. The company said it was discussing potential partnering opportunities for its glucokinase activator program.
- At September 30, redeemable noncontrolling interests represented 70.5% of vTv LLC’s economic interest; vTv Therapeutics Inc.’s effective economic interest was 29.5%. The redeemable noncontrolling interest was recorded at $155.1 million.
Outlook, risks and contingencies
- The company expects significant expenses and operating losses for at least several years and does not expect material product-sales revenue until a candidate is developed, approved and commercialized. It anticipates needing additional financing and warns that unavailable or unfavorable funding could delay, reduce or end development programs.
- On October 28, 2016, after quarter-end, vTv and vTv LLC entered a loan agreement for up to $25.0 million. The first $12.5 million tranche was borrowed at closing; further $7.5 million and $5.0 million tranches are subject to conditions, with the final tranche also tied to a specified licensing or purchase term sheet. Interest is floating at 10.5% plus the amount by which one-month LIBOR exceeds 0.5%. The first tranche has interest-only payments through May 2018 and scheduled maturity in May 2020, plus a $0.8 million final payment. The debt is secured by substantially all assets other than intellectual property, subject to specified conditions; warrants were issued and may be issued for further draws.
- Key development uncertainties include trial outcomes, enrollment, regulatory acceptance and approval, commercialization, intellectual-property protection, and access to additional capital. The company reported no material legal proceedings and no material changes to contractual cash obligations as of September 30.
- MacAndrews & Forbes affiliates held approximately 77.7% of combined voting power. The company had no recognized liability under its tax receivable agreement as of September 30.
Key facts for investors to verify
- Full AGATA results, including secondary endpoints, safety details and the magnitude of the HbA1c effect, and the status and cost trajectory of STEADFAST.
- Whether the reported cash runway through 2017 remains achievable and what financing or partnering will be required to complete Phase 3.
- Conditions, draw timing, total cost and collateral implications of the post-quarter loan, including potential additional warrants and any intellectual-property lien triggers.
- Cash burn and the distinction between consolidated losses and losses attributable to vTv shareholders, given the 70.5% noncontrolling economic interest.
- Calithera collaboration revenue concentration and the contingent milestone and royalty payments that depend on future development and commercialization.