vTv Therapeutics Inc. — Form 10-Q Summary
Reporting period: Quarter and nine months ended September 30, 2015. The company completed its IPO and reorganization on August 4, 2015; prior-period results combine predecessor entities, so the corporate structure and ownership differ from the post-IPO period.
Business context and financial performance
vTv is a clinical-stage biopharmaceutical company developing oral small-molecule drug candidates. It had no approved products and generated no product-sales revenue. The lead program, azeliragon, was in a Phase 3 Alzheimer’s study; TTP399 was enrolling patients in a Phase 2 type 2 diabetes study, and TTP273 was expected to enter Phase 2 in early 2016.
| Metric | Q3 2015 | Q3 2014 | Nine months 2015 | Nine months 2014 |
|---|---|---|---|---|
| Revenue | $0.133m | $0.400m | $0.293m | $0.615m |
| Operating expenses | $9.574m | $5.920m | $27.345m | $22.844m |
| Operating loss | $(9.441)m | $(5.520)m | $(27.052)m | $(22.229)m |
| Consolidated net loss | $(9.822)m | $(5.870)m | $(30.048)m | $(28.386)m |
| Net loss attributable to vTv Therapeutics Inc. | $(4.103)m | $(5.870)m | $(24.329)m | $(28.386)m |
Class A basic and diluted loss per share was $0.49 for Q3 and $3.05 for the nine-month period. Gross margin is not presented and is not meaningful for this development-stage business.
- Cash and liquidity: Cash and cash equivalents were $97.010m at September 30, versus $1.384m at December 31, 2014. Current assets were $97.809m and current liabilities $6.076m.
- Cash flow: Nine-month operating cash use was $27.976m, investing cash use $0.042m, and financing cash provided $123.644m. Financing included IPO proceeds and related-party debt proceeds.
- Debt and capital structure: No debt was reported on the September 30 balance sheet; predecessor debt obligations were not assumed in the reorganization. Redeemable noncontrolling interest was $188.251m. vTv Therapeutics Inc. held a 27.9% economic interest in vTv LLC, while outside holders held 72.1%.
Material changes versus comparable periods
- Revenue declined 67% in Q3 and 52% for the nine-month period, largely reflecting the transfer of the former clinical-trial-services business; 2015 revenue came from a March license agreement.
- Research and development costs rose 65% in Q3 and 56% for nine months, primarily because of azeliragon Phase 3 and diabetes clinical-trial activity and manufacturing for upcoming trials.
- Nine-month operating loss widened by $4.823m, while consolidated net loss widened by $1.662m. Lower net interest expense and a fair-value gain on a contingent distribution partly offset higher operating costs.
- IPO proceeds substantially increased cash. The offering sold 7.8125m Class A shares at $15 per share and generated approximately $104.4m net proceeds after discounts and expenses.
Outlook, risks and unusual items
- Management expected losses and R&D and G&A spending to rise for at least several years. It estimated that IPO proceeds and existing cash would fund operations through at least mid-2017, while also stating that the IPO proceeds might not be sufficient to complete the STEADFAST study.
- The company anticipated needing substantial additional funding and had no committed external funding source. Financing could dilute shareholders, impose restrictive terms, or require granting rights to drug candidates or technology.
- Development outcomes, trial enrollment and costs, FDA review and approval, competition, intellectual property, and access to capital were key uncertainties. The filing states that clinical-development costs and timing cannot be reliably estimated.
- A Calithera license covered the company’s hexokinase II inhibitor portfolio, with potential development and regulatory milestones, sales milestones, royalties, and research-cost funding; these are contingent and not guaranteed revenue.
- The reorganization excluded certain predecessor assets and liabilities. The former-officer settlement included transfer and exchange of 1,344,186 shares, while specified contingent-distribution and note obligations were settled or remained with predecessor entities.
- MacAndrews-related affiliates controlled approximately 77.8% of combined voting power at September 30. A tax receivable agreement provides for payment of 85% of specified realized or deemed tax savings; no liability had been recognized at quarter-end.
- No material legal proceedings were reported. Management concluded disclosure controls were effective as of September 30, 2015.
Most important facts for investors to verify
- Whether cash, spending, and trial timelines remained consistent with the stated mid-2017 runway, and whether additional financing became necessary.
- STEADFAST Phase 3 progress and results, FDA acceptance of the study design and data, and the clinical progress of TTP399 and TTP273.
- Terms and potential effects of exchanges of the 72.1% noncontrolling vTv LLC interest, including possible Class A share issuance or cash payments.
- Actual milestone, royalty, and research-funding receipts under the Calithera agreement, given low current revenue and customer concentration.
- Related-party governance, the substantial voting control held by MacAndrews affiliates, and any future obligations under the tax receivable agreement.