VTV THERAPEUTICS INC. The following discussion and analysis should be read in conjunction with our
consolidated financial statements and related notes included elsewhere in this
Annual Report on Form 10-K. This discussion and analysis contains
forward-looking statements based upon current beliefs, plans and expectations
that involve risks, uncertainties and assumptions, such as statements regarding
our plans, objectives, expectations, intentions and projections. Our actual
results and the timing of selected events could differ materially from those
anticipated in these forward-looking statements as a result of several factors,
including those set forth in Part I, Item 1A, "Risk Factors" in this Annual
Report on Form 10-
Company Overview
We are a clinical-stage pharmaceutical company focused on treating metabolic and inflammatory diseases to minimize their long- term complications and improve the lives of patients. We have an innovative pipeline of first-in-class small molecule clinical and pre- clinical drug candidates. Our lead program is TTP399, an orally administered, small molecule, liver-selective glucokinase activator ("GKA") for the treatment of type 1 diabetes.
Recent Developments
In
In addition to our internal development programs, we are continuing to further
the development of five partnered programs: a small molecule GLP-1r agonist (in
certain Asian territories excluding
The following table summarizes our drug candidates, their partnership status and their respective stages of development:
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* Chronic obstructive pulmonary disease
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Our Type 1 Diabetes Program - TTP399
In
In
Our Psoriasis Program - HPP737
In
With the planned implementation of our strategic focus on TTP399, discussed
further above, we plan to halt our current development activities in
Holding Company Structure
Financial Overview Revenue
To date, we have not generated any revenue from drug sales. Our revenue has been primarily derived from up-front proceeds and research fees under collaboration and license agreements.
In the future, we may generate revenue from a combination of product sales, license fees, milestone payments and royalties from the sales of products developed under licenses of our intellectual property. We expect that any revenue we generate will fluctuate from quarter to quarter as a result of the timing and amount of license fees, milestone and other payments, and the amount and timing of payments that we receive upon the sale of our products, to the extent any are successfully commercialized. If we fail to complete the development of our drug candidates in a timely manner or obtain regulatory approval for them, our ability to generate future revenue and our results of operations and financial position will be materially adversely affected.
Research and Development Expenses
Since our inception, we have focused our resources on our research and development activities, including conducting preclinical studies and clinical trials, manufacturing development efforts and activities related to regulatory filings for our drug candidates. We
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recognize research and development expenses as they are incurred. Our direct research and development expenses consist primarily of external costs such as fees paid to investigators, consultants, central laboratories and clinical research organizations ("CRO(s)") in connection with our clinical trials, and costs related to acquiring and manufacturing clinical trial materials. Our indirect research and development costs consist primarily of cash and share-based compensation costs, the cost of employee benefits and related overhead expenses for personnel in research and development functions. Since we typically use our employee and infrastructure resources across multiple research and development programs such costs are not allocated to the individual projects.
From our inception, including our predecessor companies, through
Our research and development expenses by project for the years ended
Years Ended December 31,
2021 2020 2019
Direct research and development expense:
Azeliragon $ 822 $ 6,103 $ 7,233
TTP399 2,608 917 2,762
HPP737 2,762 493 56
Other projects 717 683 578
Indirect research and development expense 6,415 2,819 4,490
Total research and development expense
We plan to continue to incur significant research and development expenses for the foreseeable future as we continue the development of TTP399 and further advance the development of our other drug candidates, subject to the availability of additional funding.
The successful development of our clinical and preclinical drug candidates is highly uncertain. At this time, we cannot reasonably estimate the nature, timing or costs of the efforts that will be necessary to complete the remainder of the development of any of our clinical or preclinical drug candidates or the period, if any, in which material net cash inflows from these drug candidates may commence. This is due to the numerous risks and uncertainties associated with the development of our drug candidates, including:
• the uncertainty of the scope, rate of progress and expense of our ongoing,
as well as any additional, clinical trials and other research and
development activities;
• the potential benefits of our candidates over other therapies;
• our ability to market, commercialize and achieve market acceptance for any
of our drug candidates that we are developing or may develop in the
future;
• future clinical trial results;
• our ability to enroll patients in our clinical trials;
• the timing and receipt of any regulatory approvals; and
• the filing, prosecuting, defending and enforcing of patent claims and
other intellectual property rights, and the expense of doing so.
A change in the outcome of any of these variables with respect to the development of a drug candidate could mean a significant change in the costs and timing associated with the development of that drug candidate. For example, if the FDA or another regulatory authority were to require us to conduct clinical trials beyond those that we currently anticipate will be required for the completion of clinical development of a drug candidate, or if we experience significant delays in enrollment in any of our clinical trials, we could be required to expend significant additional financial resources and time with respect to the development of that drug candidate.
General and Administrative Expenses
General and administrative expenses consist primarily of salaries, benefits and related costs for employees in executive, finance, corporate development, human resources and administrative support functions. Other significant general and administrative expenses include accounting and legal services, expenses associated with obtaining and maintaining patents, cost of various consultants, occupancy costs and information systems.
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Interest Expense, Net
For periods prior to
Other Income (Expense), Net
Other income/expense primarily consists of unrealized gains or losses attributable to the changes in fair value of the equity investments held in our licensees as well the recognition of changes in fair value of the warrants to purchase shares of our Class A common stock held by a related party.
Results of Operations
In this section, we discuss the results of our operations for the year ended
Comparison of the years ended
The following table sets forth certain information concerning our results of operations for the periods shown:
(dollars in thousands) Year Ended Statement of operations data: 2021 2020 Change Revenue$ 4,005 $ 6,414 $ (2,409 ) Operating expenses: Research and development 13,324 11,015 2,309 General and administrative 12,343 7,251 5,092 Total operating expenses 25,667 18,266 7,401 Operating loss (21,662 ) (11,852 ) (9,810 ) Interest income 1 12 (11 ) Interest expense (12 ) (692 ) 680 Other income (expense), net 4,057 (270 ) 4,327 Loss before income taxes (17,616 ) (12,802 ) (4,814 ) Income tax provision 115 - 115 Net loss before noncontrolling interest (17,731 ) (12,802 ) (4,929 )
Less: net loss attributable to noncontrolling (4,744 ) (4,303 ) (441 )
interest
Net loss attributable to
Revenues
Revenues were
Research and Development Expenses
Research and development expenses were
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• increased spending of $2.3 million for the development of HPP737 as we
were conducting a Phase 1 multiple-ascending dose study for this drug
candidate during the year ended December 31, 2021 ;
• increases of $2.0 million for a license payment to Novo Nordisk for the
completion of TTP399 phase 2 studies;
• increases of $1.7 million related to the development of TTP399 due to the
spending on the mechanistic study and compound manufacturing during the
year ended December 31, 2021 ;
• increases of $1.6 million related to various employee related costs
including severance costs related to the Company's restructuring plan,
increase in share-based compensation, and reversal of certain
performance-based compensation accruals in the prior year due to the
expectation they would not be paid; and
• the above increases were partially offset by a decrease in clinical trial
costs of $5.3 million for azeliragon which was mainly driven by
discontinuance of its development as a potential treatment of Alzheimer's
disease in patients with type 2 diabetes.
General and Administrative Expenses
General and administrative expenses were
• increases in severance expense of $1.5 million in connection with the
Company's restructuring plan that occurred in December 2021 .
• increases of $0.5 million in stock-based compensation expense due to the
modification of awards related to the retirement and separation
agreements with several key employees and $0.6 million from stock
options being expensed in 2021, that were granted in 2020.
• increases of $1.2 million in additional legal expenses
and;
• increases due to the reversal of certain performance-based compensation
accruals in the prior year due to the expectation they would not be
paid.
Interest Expense, Net
Interest expense, net was
Other Income / (Expense)
Other income was
Liquidity and Capital Resources
Liquidity and Going Concern
As of
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ATM Offering
We have entered into the Sales Agreement with
Lincoln Park Purchase Agreement
We have entered into the LPC Purchase Agreement, pursuant to which we have the
right to sell to Lincoln Park shares of the Company's Class A Common Stock
having an aggregate value of up to
Over the 36-month term of the LPC Purchase Agreement, we have the right, but not
the obligation, from time to time, in our sole discretion, to direct Lincoln
Park to purchase up to 250,000 shares per day (the "Regular Purchase Share
Limit") of the Class A Common Stock (each such purchase, a "Regular Purchase").
The Regular Purchase Share Limit will increase to 275,000 shares per day if the
closing price of the Class A Common Stock on the applicable purchase date is not
below
If we direct Lincoln Park to purchase the maximum number of shares of Class A Common Stock that we may sell in a Regular Purchase, then in addition to such Regular Purchase, and subject to certain conditions and limitations in the LPC Purchase Agreement, we may direct Lincoln Park to make an "accelerated purchase" and an "additional accelerated purchase", each of an additional number of shares of Class A Common Stock which may not exceed the lesser of: (i) 300% of the number of shares purchased pursuant to the corresponding Regular Purchase and (ii) 30% of the total number of shares of the Common Stock traded during a specified period on the applicable purchase date as set forth in the LPC Purchase Agreement. The purchase price for such shares will be the lesser of (i) 97% of the volume weighted average price of the Class A Common Stock over a certain portion of the date of sale as set forth in the LPC Purchase Agreement and (ii) the closing sale price of the Class A Common Stock on the date of sale (an "Accelerated Purchase"). Under certain circumstances and in accordance with the LPC Purchase Agreement, we may direct Lincoln Park to purchase shares in multiple Accelerated Purchases on the same trading day.
The LPC Purchase Agreement also prohibits us from directing Lincoln Park to
purchase any shares of its Class A Common Stock if those shares, when aggregated
with all other shares of Class A Common Stock then beneficially owned by Lincoln
Park and its affiliates, would result in
Cash Flows
Year Ended
December 31,
2021 2020
(dollars in thousands)
Net cash used in operating activities
Operating Activities
For the year ended
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Investing Activities
No cash was provided by or used in investing activities for the year ended
Financing Activities
For the year ended
Future Funding Requirements
To date, we have not generated any revenue from drug product sales. We do not know when, or if, we will generate any revenue from drug product sales. We do not expect to generate revenue from drug sales unless and until we obtain regulatory approval of and commercialize any of our drug candidates. At the same time, we expect our expenses to continue or to increase in connection with our ongoing development activities, particularly as we continue the research, development and clinical trials of, and seek regulatory approval for, our drug candidates. In addition, subject to obtaining regulatory approval of any of our drug candidates, we expect to incur significant commercialization expenses for product sales, marketing, manufacturing and distribution. We anticipate that we will need substantial additional funding in connection with our continuing operations.
We plan to finance our operations into the fourth quarter of 2022 through the use of our cash and cash equivalents and the ability to sell shares of our Class A Common Stock pursuant to the ATM Offering and LPC Purchase Agreement. However, the ability to use these sources of capital is dependent on a number of factors, including the prevailing market price of and the volume of trading in the Company's Class A Common Stock. We are also evaluating additional financing strategies to fund the clinical trials of TTP399, including direct equity investments and future public offerings of our common stock, and we are currently in active discussions with respect to financing, partnering and licensing transactions for the further development of TTP399. The timing of any such transactions is not certain, and we may not be able to complete such transactions on acceptable terms, or at all. Even if we are able to complete such transactions, it may contain restrictions on our operations or cause substantial dilution to our stockholders. We have based our estimates on assumptions that may prove to be wrong, and we may use our available capital resources sooner than we currently expect. Because of the numerous risks and uncertainties associated with the development and commercialization of our drug candidates, we are unable to estimate the amounts of increased capital outlays and operating expenditures necessary to complete the development of our drug candidates
Our future capital requirements will depend on many factors, including:
• The progress, costs, results and timing of our planned trials to evaluate
TTP399 as a potential treatment of type 1 diabetes;
• the willingness of the FDA to rely upon our completed and planned
clinical and preclinical studies and other work, as the basis for
review and approval of our drug candidates;
• the outcome, costs and timing of seeking and obtaining FDA and any other
regulatory approvals;
• the number and characteristics of drug candidates that we pursue,
including our drug candidates in preclinical development;
• the ability of our drug candidates to progress through clinical
development successfully;
• our need to expand our research and development activities;
• the costs associated with securing, establishing and maintaining
commercialization capabilities;
• the costs of acquiring, licensing or investing in businesses, products,
drug candidates and technologies;
• our ability to maintain, expand and defend the scope of our intellectual
property portfolio, including the amount and timing of any payments we
may be required to make, or that we may receive, in connection with the
licensing, filing, prosecution, defense and enforcement of any patents
or other intellectual property rights;
• our need and ability to hire additional management and scientific and
medical personnel;
• the effect of competing technological and market developments;
• our need to implement additional internal systems and infrastructure,
including financial and reporting systems;
• the economic and other terms, timing and success of our existing
licensing arrangements and any collaboration, licensing or other
arrangements into which we may enter in the future;
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• the amount of any payments we are required to make to M&F TTP
Holdings Two LLC in the future under the Tax Receivable Agreement;
and
• the impact and duration of the COVID-19 outbreak / pandemic.
Until such time, if ever, as we can generate substantial revenue from drug sales, we expect to finance our cash needs through a combination of equity offerings, debt financings, marketing and distribution arrangements and other collaborations, strategic alliances and licensing arrangements. We do not currently have any committed external source of funds other than those available through the ATM Offering and LPC Purchase Agreement. We are evaluating several financing strategies to fund the on-going and future clinical trials of TTP399, including direct equity investments and future public offerings of our common stock. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interests of our common stockholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our common stockholders. Debt financing and preferred equity financing, if available, may involve agreements that include covenants that will further limit or restrict our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we raise additional funds through collaborations, strategic alliances or marketing, distribution or licensing arrangements with third parties, we may be required to relinquish valuable rights to our technologies, future revenue streams or drug candidates or grant licenses on terms that may not be favorable to us. If we are unable to obtain additional funding, we could be forced to delay, reduce or eliminate our research and development programs or commercialization efforts, or pursue one or more alternative strategies, such as restructuring, any of which could adversely affect our business prospects.
Off-Balance Sheet Arrangements
As of
Discussion of Critical Accounting Policies and Estimates
Our management's discussion and analysis of our financial condition and results
of operations is based on our financial statements, which we have prepared in
accordance with generally accepted accounting principles in
While our significant accounting policies are more fully described in Note 2, "Summary of Significant Accounting Policies," to our audited financial statements, we believe that the following accounting policies related to revenue recognition, research and development, income taxes, and share-based compensation are the most critical for fully understanding and evaluating our financial condition and results of operations.
Basis of Presentation
The Company is a holding company, and its principal asset is a controlling equity interest in vTv LLC, the Company's principal operating subsidiary. The Company has determined that vTv LLC is a VIE for accounting purposes and that the Company is the primary beneficiary of vTv LLC because (through its managing member interest in vTv LLC and the fact that the senior management of the Company is also the senior management of vTv LLC) it has the power to direct all of the activities of vTv LLC, which include those that most significantly impact vTv LLC's economic performance. The Company has therefore consolidated vTv LLC's results under the VIE accounting model in its consolidated financial statements.
Revenue Recognition
The majority of our revenue results from its license and collaboration agreements associated with the development of investigational drug products. We account for a contract when it has approval and commitment from both parties, the rights of the parties are identified, payment terms are identified, the contract has commercial substance and collectability of consideration is probable. For each contract meeting these criteria, we identify the performance obligations included within the contract. A performance obligation is a promise in a contract to transfer a distinct good or service to the customer. We then recognize revenue under each contract as the related performance obligations are satisfied.
The transaction price under the contract is determined based on the value of the consideration expected to be received in exchange for the transferred assets or services. Development, regulatory and sales milestones included in our collaboration agreements are considered to be variable consideration. The amount of variable consideration expected to be received is included in the transaction
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price when it becomes probable that the milestone will be met. For contracts with multiple performance obligations, the contract's transaction price is allocated to each performance obligation using our best estimate of the standalone selling price of each distinct good or service in the contract. The primary method used to estimate standalone selling price is the expected cost plus margin approach. Revenue is recognized over the related period over which we expect the services to be provided using a proportional performance model or a straight-line method of recognition if there is no discernable pattern over which the services will be provided.
See Note 2 "Summary of Significant Accounting Policies", to the Consolidated
Financial Statements in Item 15 of Part IV of this Annual Report on Form 10-K
for further information regarding the adoption of ASC Topic 606, "Revenue From
Contracts With Customers" and the related changes in the recognition of revenue
that were adopted on
Research and Development
Major components of research and development costs include cash compensation, costs of preclinical studies, clinical trials and related clinical manufacturing, costs of drug development, costs of materials and supplies, facilities cost, overhead costs, regulatory and compliance costs, and fees paid to consultants and other entities that conduct certain research and development activities on our behalf. Costs incurred in research and development are expensed as incurred.
We record accruals based on estimates of the services received, efforts expended and amounts owed pursuant to contracts with numerous contract research organizations. In the normal course of business, we contract with third parties to perform various clinical study activities in the ongoing development of potential products. The financial terms of these agreements are subject to negotiation and variation from contract to contract and may result in uneven payment flows. Payments under the contracts depend on factors such as the achievement of certain events and the completion of portions of the clinical study or similar conditions. The objective of our accrual policy is to match the recording of expenses in our financial statements to the actual services received and efforts expended. As such, expense accruals related to clinical studies are recognized based on our estimate of the degree of completion of the event or events specified in the specific clinical study.
We record nonrefundable advance payments we make for future research and development activities as prepaid expenses. Prepaid expenses are recognized as expense in the statements of operations as we receive the related goods or services.
Income Taxes
In connection with the IPO,
Our income tax expense, deferred tax assets and liabilities and reserves for
unrecognized tax benefits reflect management's best assessment of estimated
future taxes to be paid. We are subject to income taxes in both
We account for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events included in the financial statements. Under this method, we determine deferred tax assets and liabilities on the basis of differences between the financial statement and tax bases of assets and liabilities by using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period in which the enactment date occurs.
We recognize deferred tax assets to the extent we believe these assets are more-likely-than-not to be realized. In making such a determination, we consider all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax planning strategies and recent results of operations.
We record uncertain tax positions on the basis of a two-step process in which (1) we determine whether it is more-likely-than-not that the tax positions will be sustained on the basis of the technical merits of the position and (2) for those tax positions meeting the more-likely-than-not recognition threshold, we recognize the largest amount of tax benefit that is more than 50% likely to be realized upon ultimate settlement with the related tax authority.
Interest and penalties related to income taxes are included in the benefit (provision) for income taxes in our Consolidated Statement of Operations. We have not incurred any significant interest or penalties related to income taxes in any of the periods presented.
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Share-Based Compensation
Compensation expense for share-based compensation awards issued is based on the
fair value of the award at the date of grant, and compensation expense is
recognized for those awards earned over the service period. The grant date fair
value of stock option awards is estimated using the Black-Scholes option pricing
formula. Due to the lack of sufficient historical trading information with
respect to our own shares, we estimate expected volatility based on the
historical volatility of our own stock coupled with a portfolio of selected
stocks of companies believed to have market and economic characteristics similar
to our own. The risk-free rate is based on the
Effect of Recent Accounting Pronouncements
See discussion of recent accounting pronouncements in Note 2, "Summary of Significant Accounting Policies", to the Consolidated Financial Statements in Item 15 of Part IV of this Annual Report on Form 10-K.
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