Business context and reporting period
vTv Therapeutics Inc. filed this Form 10-Q for the quarter ended June 30, 2015. The registrant was a newly formed holding company with no substantive operations at quarter-end; the operating results and balance sheet discussed below are primarily those of its predecessor companies, TransTech Pharma, LLC and High Point Pharmaceuticals, LLC. The predecessors’ assets and operations were reorganized into vTv Therapeutics LLC in connection with the IPO, which closed August 4, 2015.
vTv is a clinical-stage biopharmaceutical company developing oral small-molecule drug candidates. Its lead programs include azeliragon for Alzheimer’s disease and TTP399 and TTP273 for type 2 diabetes. It had no approved products and no revenue from drug sales.
Financial performance and liquidity
Unless otherwise indicated, financial statement amounts below are in thousands of dollars and relate to the combined predecessors.
| Metric | Three months ended June 30 | Six months ended June 30 |
|---|---|---|
| Revenue | 2015: $110; 2014: $201 | 2015: $160; 2014: $215 |
| Operating expenses | 2015: $7,999; 2014: $7,393 | 2015: $17,770; 2014: $16,924 |
| Operating loss | 2015: $(7,889); 2014: $(7,192) | 2015: $(17,610); 2014: $(16,709) |
| Net loss | 2015: $(10,412); 2014: $(7,404) | 2015: $(20,225); 2014: $(22,516) |
| Cash used in operating activities | Not separately reported | 2015: $(18,154); 2014: $(18,242) |
- Six-month R&D expense rose 50.8% to $13.5 million, mainly from higher clinical-trial and drug-manufacturing costs. G&A fell 46.2% to $4.3 million, largely reflecting lower severance-related compensation.
- For the six months, net loss improved year over year mainly because 2014 included $4.8 million of debt-discount amortization. In the second quarter, net loss widened, including a $1.4 million increase in the fair value of a contingent distribution liability.
- At June 30, cash and cash equivalents were $2.4 million, with $130,000 of restricted cash. Current liabilities were $63.0 million, including $46.6 million of related-party short-term debt and $2.2 million of other short-term debt. Total liabilities were $99.9 million; the balance sheet also reported $513.2 million of redeemable convertible preferred units and a $594.1 million members’ deficit.
- Six-month investing cash outflow was $33,000; financing provided $19.2 million, primarily from related-party borrowing. The predecessors’ cash balance increased by $1.0 million.
- Gross margin is not presented and is not a useful measure here given the company’s development-stage business and minimal collaboration-related revenue.
Material changes, IPO and outlook
- On August 4, 2015, the company sold 7,812,500 Class A shares at $15 per share. Gross proceeds were approximately $117.2 million; net proceeds were approximately $104.2 million after underwriting discounts and offering expenses. The filing separately describes approximately $109.0 million of proceeds after underwriting discounts but before expenses.
- Management expected IPO proceeds and existing cash to fund operations through at least mid-2017 under its then-current plan, while also stating that proceeds might not be sufficient to complete the azeliragon Phase 3 STEADFAST study. Management anticipated ongoing losses, rising development and public-company costs, and a need for additional financing before product commercialization.
- The company reported enrollment underway in the STEADFAST Phase 3 study of azeliragon and the AGATA study of TTP399; it anticipated a Phase 2 trial of TTP273 in early 2016. Development timelines, costs, results and regulatory approvals remain uncertain.
- The reorganization left certain predecessor assets and liabilities outside the operating company. The filing’s pro forma presentation shows approximately $106.6 million of cash and $109.3 million of total assets after giving effect to the IPO and reorganization; these are pro forma figures, not the June 30 actual balance sheet. vTv Therapeutics Inc. expected to consolidate vTv Therapeutics LLC while holding a 23.8% economic interest initially; the noncontrolling holders held 76.2%.
- Subsequent events included conversion of $27.0 million of related-party advances into Series G preferred units at the predecessor level, an August land sale that repaid $1.3 million of associated debt with no gain or loss, and an August settlement with a former officer. The settlement transferred 1,346,186 Class B shares and corresponding units; the former officer’s note receivable was canceled and related perpetual securities were repurchased.
- Other disclosed obligations include Columbia University license payments of $100,000 annually from 2015 through 2021, a potential $750,000 regulatory milestone, and potential single-digit royalties. The contingent distribution arrangement had a stated maximum of $150 million, subject to termination provisions; its June 30 fair value was $27.1 million.
- Management said disclosure controls were effective as of June 30, 2015. The company reported no material legal proceedings or off-balance-sheet arrangements.
Most important facts for investors to verify
- Whether the IPO proceeds and subsequent cash position support the stated runway, given expected losses and the possibility of further financing.
- Clinical progress, enrollment, safety and efficacy results for STEADFAST and AGATA, and the timing and cost of planned trials.
- The exact post-reorganization allocation of assets, debt, preferred interests and contingent obligations between vTv Therapeutics Inc., vTv Therapeutics LLC and the predecessor entities.
- The economic and voting implications of the 76.2% noncontrolling interest, exchange rights, and tax receivable agreement requiring payment of 85% of specified realized or deemed tax savings.
- The terms and valuation assumptions underlying preferred-unit fair values, the contingent distribution, and related-party balances and transactions.