vTv Therapeutics Inc. — Q2 2018 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2018. The filing was signed August 3, 2018. vTv is a clinical-stage biopharmaceutical company with no approved products and no product-sales revenue; reported revenue primarily reflects licensing and collaboration arrangements.
Financial performance
Amounts in millions of dollars, except per-share data. Figures may not sum due to rounding.
| Metric | Q2 2018 | Q2 2017 | Six months 2018 | Six months 2017 |
|---|---|---|---|---|
| Revenue | $2.473 | $0.013 | $4.537 | $0.043 |
| Research and development expense | $8.594 | $9.623 | $17.537 | $20.583 |
| General and administrative expense | $2.737 | $3.005 | $4.992 | $5.829 |
| Operating loss | $(8.858) | $(12.615) | $(17.992) | $(26.369) |
| Net loss, before noncontrolling interest | $(9.596) | $(13.414) | $(19.556) | $(27.700) |
| Net loss attributable to vTv Therapeutics Inc. | $(3.072) | $(3.963) | $(6.024) | $(8.183) |
| Basic and diluted loss per Class A share | $(0.31) | $(0.41) | $(0.61) | $(0.84) |
Revenue increased primarily from the Huadong, Reneo and Newsoara license agreements. The company reported a $0.2 million income tax provision in 2018, related to foreign withholding taxes on the Newsoara agreement. Q2 related-party other income of $0.316 million included a gain from remeasuring MacAndrews warrants; six-month related-party other income was $0.291 million.
Cash flow and liquidity: For the six months ended June 30, operating cash use was $14.727 million, versus $26.453 million in 2017; financing provided $3.958 million, including $5.0 million from share issuance to MacAndrews, offset in part by $1.042 million of loan repayments. Cash, cash equivalents and restricted cash totaled $3.663 million, of which $1.163 million was unrestricted cash and $2.5 million was pledged under the loan agreement. Accounts receivable was $2.270 million, including amounts due under license and JDRF arrangements.
At June 30, total notes payable were $19.092 million, including $8.229 million current; the loan bears a floating rate of 10.5% plus the amount by which one-month LIBOR exceeds 0.5%. Total current liabilities were $31.487 million versus current assets of $6.008 million. The filing reports an accumulated deficit of $206.5 million. Profit margins are not meaningful given the company’s continuing operating losses and lack of product sales.
Material changes versus prior comparable periods
- Six-month revenue rose to $4.537 million from $0.043 million, while operating loss narrowed to $17.992 million from $26.369 million. Net loss attributable to vTv narrowed to $6.024 million from $8.183 million.
- R&D expense fell 14.8% for the first half, chiefly because azeliragon clinical trial activity and related studies declined or ended. G&A expense fell 14.4%, mainly due to lower expected incentive compensation and professional fees.
- Interest expense increased to $1.725 million from $1.391 million for the first half, reflecting the outstanding loan balance and related financing costs.
- Cash, cash equivalents and restricted cash declined by $10.757 million during the first half. Redeemable noncontrolling interest fell from $131.440 million to $39.413 million, reflecting a change in its redemption value; this accounting change is not cash flow.
Outlook, risks and unusual items
- Going concern: Management said available liquidity was expected to fund the current operating plan only through September 2018 and disclosed substantial doubt about the company’s ability to continue as a going concern. The filing states that funding sources then available included $1.2 million cash, a $1.7 million Newsoara receivable net of applicable taxes, and remaining capacity under the 2017 MacAndrews agreement.
- Subsequent financing: After quarter-end, MacAndrews purchased $2.5 million of Class A shares under the 2017 agreement. A July 30, 2018 agreement provided up to an additional $10 million through share sales at $1.33 per share, at the company’s or MacAndrews’ option, and included warrants. These are financing arrangements, not evidence that the full $10 million had been received.
- Azeliragon: Both parts of the Phase 3 STEADFAST study failed to meet their co-primary endpoints. The company discontinued the studies and open-label extension. Post hoc analyses suggested possible benefit in a lower-plasma-concentration subgroup, but the Part A result was not adjusted for multiple comparisons. The company sought FDA feedback on possible further development and expected a meeting or written responses in September or October 2018.
- Other programs: Management expected to continue diabetes programs, including TTP399; TTP273 was being developed by Huadong under license. The company was seeking additional partners for its GKA, GLP-1r and other candidates.
- Key financing and operating risks: Additional capital is required, financing timing and availability are uncertain, and failed STEADFAST endpoints may hinder fundraising. Failure to secure funds could force program reductions, cessation of operations or bankruptcy protection. The loan is secured by substantially all assets, including intellectual property following the STEADFAST termination, and requires at least $2.5 million in a pledged account.
- Listing risk: Nasdaq notified the company that it did not meet minimum market value and publicly held share market value requirements, with compliance deadlines of October 29 and November 28, 2018, respectively. The filing says there is no assurance compliance would be regained.
Most important facts for investors to verify
- Actual cash runway and subsequent cash receipts under the 2017 and 2018 MacAndrews agreements, including share issuance, warrant terms and dilution.
- Whether the company obtained additional financing or partnerships before its stated September 2018 liquidity horizon, and any subsequent going-concern updates.
- FDA feedback on azeliragon’s development pathway and whether any further clinical trials are required, given that both STEADFAST parts missed their primary endpoints.
- Nasdaq compliance status and the company’s ability to meet the minimum market value requirements.
- Debt repayment schedule, interest burden, collateral provisions and compliance with the pledged-cash minimum.