Business context and reporting period
This is Vital Therapies, Inc.’s Form 10-K for the fiscal year ended December 31, 2018—not a report of Immunic, Inc. for a standalone quarter. Vital Therapies was a clinical-stage biotechnology company developing the ELAD bio-artificial liver system and had no commercial products or operating revenue. After its Phase 3 VTL-308 trial failed to meet its primary and secondary survival endpoints, the company halted further ELAD development in the U.S. and Europe, cut its workforce, and pursued strategic alternatives.
In January 2019, after the reporting period, Vital Therapies agreed to exchange shares with Immunic AG, which would become its wholly owned subsidiary; the combined company was expected to focus on Immunic’s inflammatory and autoimmune disease programs. The transaction remained subject to stockholder approval and other conditions when the 10-K was filed.
Financial results and liquidity
| Metric | FY 2018 | FY 2017 |
|---|---|---|
| Revenue | None from planned principal operations | None from planned principal operations |
| Research and development expense | $24.8 million | $39.3 million |
| General and administrative expense | $13.6 million | $13.3 million |
| Severance and impairment charges | $2.4 million; $1.2 million | None reported |
| Total operating expenses | $42.0 million | $52.7 million |
| Net loss | $41.5 million | $52.1 million |
| Net loss per share, basic and diluted | $0.98 | $1.31 |
| Net cash used in operating activities | $43.2 million | $40.4 million |
| Cash and cash equivalents at year-end | $13.3 million | $56.9 million |
| Working capital at year-end | $11.7 million | $47.8 million |
| Total assets / total liabilities | $15.0 million / $2.6 million | $60.4 million / $10.3 million |
Margins are not meaningful because the company reported no operating revenue. The filing does not identify material borrowings; reported liabilities were primarily accounts payable, accrued expenses and lease-related obligations. Contractual operating lease payments totaled $1.5 million at year-end, including $469,000 due within one year.
Material changes versus the prior comparable period
- Net loss narrowed by $10.6 million, while operating expenses fell 20%, largely because VTL-308 enrollment ended and substantially all ELAD development ceased in September 2018.
- Research and development expense declined 37% to $24.8 million. General and administrative expense was broadly stable at $13.6 million.
- The company recorded $2.4 million of severance costs following an approximately 85% workforce reduction and a $1.2 million impairment charge on property and equipment.
- Operating cash use increased to $43.2 million from $40.4 million. The company had only $4,000 of financing cash inflow in 2018, compared with $38.0 million in 2017 from equity offerings.
- Cash fell $43.6 million during 2018 to $13.3 million; accumulated deficit reached $337.4 million.
For Q4 2018, the filing reports operating expenses of $2.6 million and net loss of $2.5 million, or $0.06 per share, compared with Q4 2017 operating expenses of $14.8 million and net loss of $14.6 million, or $0.35 per share.
Outlook, risks and unusual items
- Management said year-end cash was expected to cover known liabilities and commitments based on then-current operations, but warned that needs could change with strategic transactions or other cash requirements. Management and the auditor disclosed substantial doubt about the company’s ability to continue as a going concern for one year from issuance of the financial statements.
- The Immunic transaction was expected to bring approximately €26.7 million (about $30.5 million at the cited exchange rate) of investment into Immunic before closing, subject to the transaction’s conditions. Existing Vital Therapies stockholders were expected to own approximately 11% of the combined company on a fully diluted basis, subject to adjustment.
- If the transaction did not close, the company could pursue another transaction or dissolve and liquidate. The filing cautions that any liquidation distribution would depend on obligations, reserves and timing and could be materially reduced or nil.
- Vital Therapies had until April 23, 2019 to regain Nasdaq’s $1.00 minimum bid-price compliance. Delisting could impair its financing and strategic options.
- The company reported no current litigation believed likely to materially affect its business. It cited risks including constrained financing, loss of key remaining employees, transaction approval and execution, and potential limits on use of tax attributes after an ownership change.
- Management reported disclosure controls and internal control over financial reporting were effective at December 31, 2018; the auditor did not attest to internal-control effectiveness.
Important facts for investors to verify
- Whether the Immunic exchange transaction closed, its final terms, the resulting ownership split, and the status and proceeds of Immunic’s concurrent financing.
- Actual cash burn, cash balance, obligations and runway after year-end, including transaction, severance, lease and other costs.
- Nasdaq listing compliance and any subsequent financing, asset sale, liquidation decision or material change in operations.
- Whether any further development or disposition of ELAD assets occurred; VTL-308 did not demonstrate statistically significant survival benefit.
- The consequences of any ownership change for the company’s net operating losses and tax credits; the filing warns that their use may be substantially limited.