vtvt-10q_20170331.htm

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2017

Or

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                      

Commission file number: 001-37524

 

vTv Therapeutics Inc.

(Exact name of registrant as specified in its charter)

 

 

Delaware

 

47-3916571

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

 

 

4170 Mendenhall Oaks Pkwy

High Point, NC

 

27265

(Address of principal executive offices)

 

(Zip Code)

(336) 841-0300

(Registrant’s telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

Accelerated filer

 

 

 

 

Non-accelerated filer

  

Smaller reporting company

 

 

 

 

Emerging growth company

  

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.   

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  

 

Class of Stock

 

Shares Outstanding as of May 3, 2017

 

Class A common stock, par value $0.01 per share

 

 

9,693,254

 

Class B common stock, par value $0.01 per share

 

 

23,119,246

 

 

 


 

vTv THERAPEUTICS INC. AND SUBSIDIARIES

INDEX TO FORM 10-Q

FOR THE QUARTER ENDED March 31, 2017

 

 

 

 

 

PAGE
NUMBER

 

 

 

 

PART I – FINANCIAL INFORMATION

 

 

 

 

 

 

 

Item 1.

  

Condensed Consolidated Balance Sheets as of March 31, 2017 (Unaudited) and December 31, 2016

  

4

 

 

 

 

 

 

 

Unaudited Condensed Consolidated Statements of Operations for the three months ended March 31, 2017 and 2016

 

5

 

 

 

 

 

 

 

Unaudited Condensed Consolidated Statement of Changes in Redeemable Noncontrolling Interest and Stockholders’ Deficit for the three months ended March 31, 2017

 

6

 

 

 

 

 

 

 

Unaudited Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2017 and 2016

 

7

 

 

 

 

 

 

 

Notes to Unaudited Consolidated Financial Statements

 

8

 

 

 

 

 

Item 2.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

17

 

 

 

 

 

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

 

25

 

 

 

 

 

Item 4.

 

Controls and Procedures

 

26

 

 

 

 

PART II – OTHER INFORMATION

 

 

 

 

 

 

 

Item 1.

 

Legal Proceedings

 

26

 

 

 

 

 

Item 1A.

 

Risk Factors

 

26

 

 

 

 

 

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

26

 

 

 

 

 

Item 3.

 

Defaults Upon Senior Securities

 

26

 

 

 

 

 

Item 4.

 

Mine Safety Disclosures

 

27

 

 

 

 

 

Item 5.

 

Other Information

 

27

 

 

 

 

 

Item 6.

 

Exhibits

 

28

 

 

2


 

PART I – FINANCIAL INFORMATION

The financial statements and other disclosures contained in this report include those of vTv Therapeutics Inc. (“we”, the “Company” or the “Registrant”), which is the registrant, and those of vTv Therapeutics LLC (“vTv LLC”), which is the principal operating subsidiary of the Registrant.  Unless the context suggests otherwise, references in this Quarterly Report on Form 10-Q to the “Company”, “we”, “us” and “our” refer to vTv Therapeutics Inc. and its consolidated subsidiaries.

 

 

3


 

vTv Therapeutics Inc.

Condensed Consolidated Balance Sheets

(in thousands, except number of shares and per share data)

 

 

March 31,

 

 

December 31,

 

 

2017

 

 

2016

 

 

(Unaudited)

 

 

 

 

 

Assets

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

Cash and cash equivalents

$

45,150

 

 

$

51,505

 

Prepaid expenses and other current assets

 

782

 

 

 

612

 

Total current assets

 

45,932

 

 

 

52,117

 

Property and equipment, net

 

426

 

 

 

444

 

Other long-term assets

 

1,971

 

 

 

1,934

 

Total assets

$

48,329

 

 

$

54,495

 

Liabilities, Redeemable Noncontrolling Interest and Stockholders’ Deficit

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

Accounts payable and accrued expenses

$

11,105

 

 

$

11,413

 

Deferred revenue

 

4

 

 

 

21

 

Total current liabilities

 

11,109

 

 

 

11,434

 

Notes payable

 

18,761

 

 

 

11,058

 

Other liabilities

 

269

 

 

 

433

 

Total liabilities

 

30,139

 

 

 

22,925

 

Commitments and contingencies

 

 

 

 

 

 

 

Redeemable noncontrolling interest

 

141,659

 

 

 

122,515

 

Stockholders’ deficit:

 

 

 

 

 

 

 

Class A Common Stock, $0.01 par value; 100,000,000 shares authorized, 9,693,254

    shares outstanding as of March 31, 2017 and December 31, 2016

 

97

 

 

 

97

 

Class B Common Stock, $0.01 par value; 100,000,000 shares authorized, 23,119,246

   shares outstanding as of March 31, 2017 and December 31, 2016

 

232

 

 

 

232

 

Additional paid-in capital

 

125,118

 

 

 

124,212

 

Accumulated deficit

 

(248,916

)

 

 

(215,486

)

Total stockholders’ deficit attributable to vTv Therapeutics Inc.

 

(123,469

)

 

 

(90,945

)

Total liabilities, redeemable noncontrolling interest and stockholders’ deficit

$

48,329

 

 

$

54,495

 

 

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.

 

 

4


 

vTv Therapeutics Inc.

Condensed Consolidated Statements of Operations - Unaudited

(in thousands, except number of shares and per share data)

 

 

Three Months Ended

 

 

March 31,

 

 

2017

 

 

2016

 

Revenue

$

30

 

 

$

376

 

Operating expenses:

 

 

 

 

 

 

 

Research and development

 

10,960

 

 

 

11,141

 

Research and development - related party

 

 

 

 

194

 

General and administrative

 

2,824

 

 

 

2,581

 

Total operating expenses

 

13,784

 

 

 

13,916

 

Operating loss

 

(13,754

)

 

 

(13,540

)

Other income (loss), net

 

 

 

 

(1

)

Interest income

 

27

 

 

 

23

 

Interest expense

 

(559

)

 

 

(2

)

Loss before income taxes and noncontrolling interest

 

(14,286

)

 

 

(13,520

)

Income tax provision

 

 

 

 

 

Net loss before noncontrolling interest

 

(14,286

)

 

 

(13,520

)

Less:  net loss attributable to noncontrolling interest

 

(10,066

)

 

 

(9,668

)

Net loss attributable to vTv Therapeutics Inc.

$

(4,220

)

 

$

(3,852

)

Net loss per share of vTv Therapeutics Inc. Class A Common

   Stock, basic and diluted

$

(0.44

)

 

$

(0.42

)

Weighted-average number of vTv Therapeutics Inc. Class A

   Common Stock, basic and diluted

 

9,693,254

 

 

 

9,229,645

 

 

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.

 

 

5


 

vTv Therapeutics Inc.

Condensed Consolidated Statement of Changes in Redeemable Noncontrolling Interest and Stockholders’ Deficit - Unaudited

(in thousands, except number of shares)

 

 

 

 

 

 

Class A Common Stock

 

 

Class B Common Stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Redeemable

Noncontrolling

Interest

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Additional

Paid-in

Capital

 

 

Accumulated Deficit

 

 

Total Stockholders' Deficit

 

Balances at December 31, 2016

 

122,515

 

 

 

9,693,254

 

 

 

97

 

 

 

23,119,246

 

 

 

232

 

 

 

124,212

 

 

 

(215,486

)

 

 

(90,945

)

Net loss

 

(10,066

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(4,220

)

 

 

(4,220

)

Share-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

739

 

 

 

 

 

 

739

 

Issuance of warrants to purchase

   Class A Common Stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

167

 

 

 

 

 

 

167

 

Change in redemption value of

   noncontrolling interest

 

29,210

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(29,210

)

 

 

(29,210

)

Balances at March 31, 2017

$

141,659

 

 

 

9,693,254

 

 

$

97

 

 

 

23,119,246

 

 

$

232

 

 

$

125,118

 

 

$

(248,916

)

 

$

(123,469

)

 

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.

 

 

6


 

vTv Therapeutics Inc.

Condensed Consolidated Statements of Cash Flows - Unaudited

(in thousands)

 

 

 

Three Months Ended March 31,

 

 

 

2017

 

 

2016

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net loss before noncontrolling interest

 

$

(14,286

)

 

$

(13,520

)

Adjustments to reconcile net loss before noncontrolling interest to net cash used in operating

   activities:

 

 

 

 

 

 

 

 

Loss on disposal of PP&E, net

 

 

5

 

 

 

 

Depreciation expense

 

 

52

 

 

 

79

 

Share-based compensation expense

 

 

739

 

 

 

607

 

Amortization of debt discount

 

 

203

 

 

 

 

Changes in assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

 

 

 

(137

)

Prepaid expenses and other assets

 

 

(170

)

 

 

(232

)

Employee loans receivable – related party

 

 

 

 

 

25

 

Other long-term assets

 

 

(37

)

 

 

(264

)

Accounts payable and accrued expenses

 

 

(308

)

 

 

1,328

 

Accounts payable and accrued expenses – related party

 

 

 

 

 

(258

)

Deferred revenue

 

 

(17

)

 

 

(122

)

Other liabilities

 

 

3

 

 

 

(8

)

Net cash used in operating activities

 

 

(13,816

)

 

 

(12,502

)

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Proceeds from sale of assets

 

 

 

 

 

 

Purchases of property and equipment

 

 

(39

)

 

 

 

Net cash used in investing activities

 

 

(39

)

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Proceeds from debt issuance

 

 

7,500

 

 

 

 

Net cash provided by financing activities

 

 

7,500

 

 

 

 

Net decrease in cash and cash equivalents

 

 

(6,355

)

 

 

(12,502

)

Cash and equivalents, beginning of period

 

 

51,505

 

 

 

88,003

 

Cash and equivalents, end of period

 

$

45,150

 

 

$

75,501

 

 

 

 

 

 

 

 

 

 

Non-cash activities:

 

 

 

 

 

 

 

 

Change in redemption value of noncontrolling interest

 

$

29,210

 

 

$

(16,981

)

Exchange of vTv Therapeutics Inc. Class B Common Stock and vTv Therapeutics, LLC

   member units for vTv Therapeutics Inc. Class A Common Stock

 

$

 

 

$

1,212

 

 

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.

 

 

7


 

vTv Therapeutics Inc.

Notes to Condensed Consolidated Financial Statements – Unaudited

(dollar amounts are in thousands, unless otherwise noted)

 

 

Note 1:

Description of Business and Basis of Presentation

Description of Business

vTv Therapeutics Inc. (the “Company,” the “Registrant,” “we” or “us”), was incorporated in the state of Delaware in April 2015. The Company was formed to discover and develop orally administered small molecule drug candidates to fill significant unmet medical needs.

Principles of Consolidation

vTv Therapeutics Inc. is a holding company and its principal asset is a controlling equity interest in vTv Therapeutics LLC (“vTv LLC”), the Company’s principal operating subsidiary, which is a clinical-stage biopharmaceutical company engaged in the discovery and development of orally administered small molecule drug candidates to fill significant unmet medical needs.

The Company has determined that vTv LLC is a variable-interest entity (“VIE”) for accounting purposes and that vTv Therapeutics Inc. is the primary beneficiary of vTv LLC because (through its managing member interest in vTv LLC and the fact that the senior management of vTv Therapeutics Inc. is also the senior management of vTv LLC) it has the power and benefits to direct all of the activities of vTv LLC, which include those that most significantly impact vTv LLC’s economic performance. vTv Therapeutics Inc. has therefore consolidated vTv LLC’s results pursuant to Accounting Standards Codification Topic 810, “Consolidation” in its Condensed Consolidated Financial Statements. As of March 31, 2017, various holders own non-voting interests in vTv LLC, representing a 70.5% economic interest in vTv LLC, effectively restricting vTv Therapeutics Inc.’s interest to 29.5% of vTv LLC’s economic results, subject to increase in the future, should vTv Therapeutics Inc. purchase additional non-voting common units (“vTv Units”) of vTv LLC, or should the holders of vTv Units decide to exchange such units (together with shares of Class B Common Stock) for shares of Class A Common Stock (or cash) pursuant to the Exchange Agreement (as defined in Note 7). vTv Therapeutics Inc. has provided financial and other support to vTv LLC in the form of its purchase of vTv Units with the net proceeds of the Company’s initial public offering (“IPO”) in 2015 and its agreeing to be a co-borrower under the Venture Loan and Security Agreement (the “Loan Agreement”) with Horizon Technology Finance Corporation and Silicon Valley Bank (together, the “Lenders”) which was entered into in 2016. vTv Therapeutics Inc. will not be required to provide financial or other support for vTv LLC outside of its obligations pertaining to the Loan Agreement as a co-borrower. However, vTv Therapeutics Inc. will control its business and other activities through its managing member interest in vTv LLC, and its management is the management of vTv LLC. The creditors of vTv LLC do not have any recourse to the general credit of vTv Therapeutics Inc. except as allowed under the provisions of the Loan Agreement. Nevertheless, because vTv Therapeutics Inc. will have no material assets other than its interests in vTv LLC, any financial difficulties at vTv LLC could result in vTv Therapeutics Inc. recognizing a loss.

 

 

Note 2:

Summary of Significant Accounting Policies

Unaudited Interim Financial Information

The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). The accompanying Condensed Consolidated Balance Sheet as of March 31, 2017, Condensed Consolidated Statements of Operations for the three months ended March 31, 2017 and 2016, Condensed Consolidated Statement of Changes in Redeemable Noncontrolling Interest and Stockholders’ Deficit for the three months ended March 31, 2017 and Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2017 and 2016 are unaudited. These unaudited financial statements have been prepared in accordance with the rules and regulations of the United States Securities and Exchange Commission (“SEC”) for interim financial information. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. These financial statements should be read in conjunction with the audited financial statements and the accompanying notes for the year ended December 31, 2016 contained in the Company’s Annual Report on Form 10-K. The unaudited interim financial statements have been prepared on the same basis as the annual financial statements and, in the opinion of management, reflect all adjustments (consisting of normal recurring adjustments) necessary to state fairly the Company’s financial position as of March 31, 2017 and the results of operations and cash flows for the three months ended March 31, 2017 and 2016. The December 31, 2016 Condensed Consolidated Balance Sheet included herein was derived from the audited financial statements, but does not include all disclosures or notes required by GAAP for complete financial statements.

8


 

The financial data and other information disclosed in these notes to the financial statements related to the three months ended March 31, 2017 and 2016 are unaudited. Interim results are not necessarily indicative of results for an entire year.

The Company does not have any components of other comprehensive income recorded within its Condensed Consolidated Financial Statements, and, therefore, does not separately present a statement of comprehensive income in its Condensed Consolidated Financial Statements.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

On an ongoing basis, the Company evaluates its estimates, including those related to the grant date fair value of equity awards, the fair value of the Class B Common Stock, the useful lives of property and equipment, the fair value of derivative liabilities, and the fair value of the Company’s debt, among others. The Company bases its estimates on historical experience and on various other assumptions that it believes to be reasonable, the results of which form the basis for making judgments about the carrying value of assets and liabilities.

Concentration of Credit Risk

Financial instruments that potentially expose the Company to concentrations of credit risk consist principally of cash on deposit with multiple financial institutions. The balances of these cash accounts frequently exceed insured limits.

There were no accounts receivable balances outstanding as of March 31, 2017 and December 31, 2016.  

One and two customers represented 100% of the revenue earned during the three months ended March 31, 2017 and 2016, respectively.

Cash and Cash Equivalents

The Company considers any highly liquid investments with an original maturity of three months or less to be cash and cash equivalents.

Collaboration Revenue

The majority of the Company’s collaboration revenue recognized in the three months ended March 31, 2016 is related to an exclusive global license agreement (the “License Agreement”), which the Company entered into on March 6, 2015 with Calithera Biosciences, Inc. (“Calithera”), granting Calithera exclusive world-wide rights to research, develop and commercialize the Company’s portfolio of hexokinase II inhibitors. Under the terms of the License Agreement, Calithera paid the Company an initial license fee of $0.6 million and potential development and regulatory milestone payments totaling up to $30.5 million for the first licensed product, an additional $77.0 million in potential sales-based milestones, as well as royalty payments, based on tiered sales of the first commercialized licensed product. In addition, the Company recognized a total of $0.3 million for the three months ended March 31, 2016 for the costs associated with up to four full-time employees for the Company to develop additional hexokinase inhibitors.  If Calithera develops additional licensed products, after achieving regulatory approval of the first licensed product, Calithera would owe additional regulatory milestone payments and additional royalty payments based on sales of such additional licensed products.

Revenue Recognition

The Company uses the revenue recognition guidance established by ASC Topic 605, “Revenue Recognition.” The Company recognizes revenue when: 1) persuasive evidence of an arrangement exists; 2) the service has been provided to the customer; 3) collection of the fee is reasonably assured; and 4) the amount of the fee to be paid by the customer is fixed or determinable. In determining the accounting for collaboration and alliance agreements, the Company follows the provisions of ASC Topic 605, Subtopic 25, “Multiple-Element Arrangements” (“ASC 605-25”) and ASC 808 (“Collaborative Arrangements”). ASC 605-25 provides guidance on whether an arrangement that involves multiple revenue-generating activities or deliverables should be divided into separate units of accounting for revenue recognition purposes and, if division is required, how the arrangement consideration should be allocated among the separate units of accounting. If a deliverable has value on a stand-alone basis, the Company treats the

9


 

deliverable as a separate unit of accounting. If the arrangement constitutes separate units of accounting according to the separation criteria of ASC 605-25, the consideration received is allocated among the separate units of accounting and the applicable revenue recognition criteria is applied to each unit. The Company determines how to allocate amounts received under agreements among the separate units based on the respective selling price of each unit. If the arrangement constitutes a single unit of accounting, the revenue recognition policy must be determined for the entire arrangement and the consideration received is recognized over the period of inception through the date the last deliverable within the single unit of accounting is expected to be delivered.

Collaboration research and development revenue is earned and recognized as research is performed and related expenses are incurred. Non-refundable upfront fees are recorded as deferred revenue and recognized into revenue as license fees and milestones from collaborations on a straight-line basis over the estimated period of the Company’s substantive performance obligations. If the Company does not have substantive performance obligations, it recognizes non-refundable upfront fees into revenue ratably over the period during which the product deliverable is provided to the customer.

Revenue for non-refundable payments based on the achievement of milestone events under collaborative arrangements is recognized in accordance with ASC Topic 605, Subtopic 28, “Milestone Method” (“ASC 605-28”). Milestone events under the Company’s collaboration agreements may include research, development, regulatory, commercialization, and sales events. Under ASC 605-28, a milestone payment is recognized as revenue when the applicable event is achieved if the event meets the definition of a milestone and the milestone is determined to be substantive. ASC 605-28 defines a milestone event as an event having all of the following characteristics: (1) substantive uncertainty regarding achievement of the milestone event exists at the inception of the arrangement; (2) the event can only be achieved based, in whole or in part, on either the Company’s performance or a specific outcome resulting from the Company’s performance; and (3) if achieved, the event will result in additional payment due to the Company. The Company also treats events that can only be achieved based, in whole or in part, on either a third party’s performance or a specific outcome resulting from a third party’s performance as milestone events if the criteria of ASC 605-28 are otherwise satisfied.

Research and development costs that are reimbursable under collaboration agreements are recorded in accordance with ASC Topic 605, Subtopic 45, “Principal-Agent Considerations.” Amounts reimbursed under a cost-sharing arrangement are reflected as reductions of research and development expense.

Research and Development

Major components of research and development costs include cash and share-based compensation, depreciation expense on research and development property and equipment, costs of preclinical studies, clinical trials and related clinical manufacturing, costs of drug development, costs of materials and supplies, facilities costs, overhead costs, regulatory and compliance costs, and fees paid to consultants and other entities that conduct certain research and development activities on the Company’s behalf. Research and development costs are expensed as incurred.

The Company records 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, the Company contracts 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 the Company’s accrual policy is to match the recording of expenses in its financial statements to the actual services received and efforts expended. As such, expense accruals related to clinical studies are recognized based on the Company’s estimate of the degree of completion of the event or events specified in the specific clinical study.

The Company records nonrefundable advance payments it makes for future research and development activities as prepaid expenses. Prepaid expenses are recognized as expense in the Condensed Consolidated Statements of Operations as the Company receives the related goods or services.

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 its own shares, the Company estimates expected volatility based on a portfolio of selected stocks of companies believed to have market and economic characteristics similar to its own. The risk free rate is based on the U.S. Treasury yield curve in effect at the time of grant. The fair value of restricted stock unit (“RSU”) grants are based on the market value of our Class A Common Stock

10


 

on the date of grant. The Company also estimates the amount of share-based awards that are expected to be forfeited based on historical employee turnover rates.  

Recently Issued Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, “Revenue From Contracts With Customers”, that outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. The ASU is based on the core principle that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This ASU also requires disclosures sufficient to enable users to understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers, including qualitative and quantitative disclosures about contracts with customers, significant judgments and changes in judgments, and assets recognized from the costs to obtain or fulfill a contract. Entities have the option of using either a full retrospective or a modified retrospective approach for the adoption of the new standard. In addition, in March, April, and May 2016, the FASB issued final amendments to clarify the implementation guidance for principal versus agent considerations, identifying performance obligations and the accounting for licenses of intellectual property, and narrow-scope improvements and practical expedients, respectively. This ASU is effective for fiscal years beginning after December 15, 2017 including interim periods within that reporting period. To date, the Company has not generated any revenue from drug sales and its ability to recognize revenue from its collaboration and licensing agreements is contingent upon its ability to enter into such agreements in the future or the clinical success of investigational drug products subject to its current agreements.  As such, the Company will continue to evaluate this guidance to determine the Company’s adoption method and the effect it will have on the Company’s Condensed Consolidated Financial Statements based on its potential future revenue sources.  

In February 2016, the FASB issued ASU No. 2016-02, “Lease (Topic 842)” (“ASU 2016-02”), which increases transparency and comparability among companies accounting for lease transactions.  The most significant change of this update will require the recognition by a lessee of lease assets and liabilities on its balance sheet for operating lease arrangements with lease terms greater than 12 months.  This update will require a modified retrospective application which includes a number of optional practical expedients related to the identification and classification of leases commenced before the effective date.  This ASU is effective for fiscal years and interim periods within those fiscal years, beginning after December 18, 2018.  The adoption of this guidance will result in the recognition of additional assets and liabilities related to the Company’s operating leases within its Condensed Consolidated Balance Sheets.

In March 2016, the FASB issued ASU No. 2016-09, “Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting” (“ASU 2016-09”), which simplifies several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows.  The Company adopted this guidance in the first quarter of fiscal 2017 on a prospective basis and will continue to estimate forfeitures of outstanding awards throughout the requisite service period.  The adoption of this guidance did not have a material impact on the Company’s Condensed Consolidated Financial Statements.

 

 

Note 3:

Share-Based Compensation

During the three months ended March 31, 2017, the Company issued non-qualified stock option awards and restricted stock units to certain employees and directors of the Company. As of March 31, 2017, the Company had total unrecognized stock-based compensation expense for its outstanding stock option awards of approximately $6.7 million, which is expected to be recognized over a weighted average period of 2.1 years. The weighted average grant date fair value of option grants during the three months ended March 31, 2017 and 2016 was $4.19 and $4.57 per option, respectively. The aggregate intrinsic value of the stock option awards outstanding at March 31, 2017 was $0.7 million.

The Company uses the Black-Scholes option pricing model to calculate the fair value of stock options granted. The fair value of stock options granted was estimated using the following assumptions:

 

 

For the three months ended March 31,

 

 

2017

 

 

2016

 

Expected volatility

84.22% - 84.93%

 

 

86.54% - 87.23%

 

Expected life of option, in years

 

6.0

 

 

5.8 - 6.0

 

Risk-free interest rate

2.05% - 2.24%

 

 

1.38% - 1.42%

 

Expected dividend yield

 

0.00%

 

 

 

0.00%

 

11


 

The following table summarizes the activity related to the stock option awards for the three months ended March 31, 2017:

 

 

Number of Shares

 

 

Weighted-

Average Exercise Price

 

Awards outstanding at December 31, 2016

 

1,096,101

 

 

$

10.68

 

Granted

 

823,000

 

 

 

5.81

 

Forfeited

 

(4,000

)

 

 

6.83

 

Awards outstanding at March 31, 2017

 

1,915,101

 

 

$

8.59

 

Options exercisable at March 31, 2017

 

363,386

 

 

$

10.98

 

Weighted average remaining contractual term

8.5 Years

 

 

 

 

 

Options vested and expected to vest at March 31, 2017

 

1,788,961

 

 

$

8.74

 

Weighted average remaining contractual term

9.1 Years

 

 

 

 

 

The following table summarizes the activity related to the awards of RSUs for the three months ended March 31, 2017:

 

 

Number of Shares

 

 

Weighted-

Average Grant Date Fair Value

 

Awards outstanding at December 31, 2016

 

 

 

$

 

Granted

 

35,000

 

 

 

5.81

 

Awards outstanding at March 31, 2017

 

35,000

 

 

$

5.81

 

RSUs vested and expected to vest at March 31, 2017

 

33,660

 

 

$

5.81

 

 

As of March 31, 2017, the Company had total unrecognized stock-based compensation expense for its outstanding RSU awards of approximately $0.2 million, which is expected to be recognized over a weighted-average period of 2.9 years.  The aggregate intrinsic value of the RSUs outstanding at March 31, 2017 was $0.2 million.

 

Compensation expense related to the grants of stock options and RSUs is included in research and development and general and administrative expense as follows (in thousands):

 

 

Three Months Ended March 31,

 

 

2017

 

 

2016

 

Research and development

$

277

 

 

$

230

 

General and administrative

 

462

 

 

 

377

 

Total share-based compensation expense

$

739

 

 

$

607

 

 

 

 

Note 4: Notes Payable

Notes payable consist of the following (in thousands):

 

March 31, 2017

 

 

December 31, 2016

 

Notes payable under the Loan Agreement

$

20,000

 

 

$

12,500

 

Less:  Debt discount

 

(1,239

)

 

 

(1,442

)

Total notes payable

$

18,761

 

 

$

11,058

 

On October 28, 2016, the Company and vTv LLC entered into the Loan Agreement under which the Company and vTv LLC may borrow up to $25.0 million in three tranches of $12.5 million, $7.5 million and $5.0 million, respectively.

The Company borrowed the first tranche of $12.5 million upon closing of the transaction on October 28, 2016 and the second tranche of $7.5 million on March 24, 2017.  Subject to certain customary funding conditions, the third tranche of $5.0 million is available for borrowing by the Company no later than June 30, 2017.  Availability of the third tranche is subject to receipt of an executed term sheet setting forth certain agreed upon upfront and clinical and regulatory milestone payments for the licensing or purchase of one of the Company’s main drug candidates.

Each loan tranche bears interest at a floating rate equal to 10.5% plus the amount by which the one-month London Interbank Offer Rate (“LIBOR”) exceeds 0.5%.

The Company has agreed to repay the first tranche of $12.5 million on an interest only basis monthly until May 1, 2018 followed by equal monthly payments of principal plus accrued interest through the scheduled maturity date for the first tranche loan

12


 

on May 1, 2020.  In addition, a final payment for the first tranche loan equal to $0.8 million will be due on May 1, 2020, or such earlier date specified in the Loan Agreement.  The Company has agreed to repay the second tranche of $7.5 million on an interest only basis monthly until October 1, 2018 followed by equal monthly payments of principal plus accrued interest through the scheduled maturity date for the second tranche loan on October 1, 2020.  In addition, a final payment for the second tranche loan equal to $0.5 million will be due on October 1, 2020, or such earlier date specified in the Loan Agreement.  

The Company has agreed to repay any amounts advanced under the third tranche of $5.0 million, in 18 monthly payments of interest only followed by 24 equal monthly payments of principal plus accrued interest through the scheduled maturity date for such loans which is 42 months following the date the Company draws down the third tranche loan.  In addition, if borrowed, a final payment equal to $0.3 million will be due on the scheduled maturity date for the third tranche loan, or on such earlier date specified in the Loan Agreement.

If the Company repays all or a portion of the loan prior to the applicable maturity date, it will pay the Lenders a prepayment penalty fee, based on a percentage of the then outstanding principal balance equal to 4.0% during the first 18 months following the funding of the second tranche and 2.0% thereafter.

The Company’s obligations under the Loan Agreement are secured by a first priority security interest in substantially all of its assets other than its intellectual property.  Subject to certain conditions related to the Company’s Phase 3 clinical trial of azeliragon, the Company may be required to grant a security interest in its intellectual property.  The Company has agreed not to pledge or otherwise encumber its intellectual property assets, subject to certain exceptions.

The Loan Agreement includes customary affirmative and restrictive covenants, including, but not limited to, restrictions on the payment of dividends or other equity distributions and the incurrence of debt or liens upon the assets of the Company or its subsidiaries.  The Loan Agreement does not contain any financial maintenance covenants. The Loan Agreement includes customary events of default, including payment defaults, covenant defaults, and material adverse change default.  Upon the occurrence of an event of default and following any applicable cure periods, a default interest rate of an additional 5% will be applied to the outstanding loan balances, and the Lenders may declare all outstanding obligations immediately due and payable and take such other actions as set forth in the Loan Agreement.

In connection with the Loan Agreement, the Company issued and is obligated to issue to the Lenders warrants to purchase shares of the Company’s Class A Common Stock (the “Warrants”).  On October 28, 2016, the Company issued Warrants to purchase 152,580 shares of its Class A Common Stock at a per share exercise price of $6.39 per share, which aggregate exercise price represents 6.0% of the principal amount borrowed under the first tranche of the Loan Agreement and 3.0% of the amount available under the second tranche of the Loan Agreement. Additionally, upon funding of the second tranche on March 24, 2017, the Company issued Warrants to purchase 38,006 shares of its Class A Common Stock at a per share exercise price of $5.92 per share, which aggregate exercise price represents 3.0% of the amount available under the second tranche of the Loan Agreement.  To the extent that the third tranche is borrowed under the Loan Agreement, the Company is obligated to issue to the Lenders Warrants with respect to a number of shares such that the aggregate exercise price of such warrants is equal to 6.0% of the third loan tranche upon funding of the third tranche.  In each instance, the Warrants have or will have an exercise price equal to the lower of (a) the volume weighted average price per share of the Company’s Class A Common Stock, as reported on the principal stock exchange on which the Company’s Class A Common Stock is listed, for 10 trading days prior to the issuance of the applicable Warrants or (b) the closing price of a share of the Company’s Class A Common Stock on the trading day prior to the issuance of the applicable Warrants.  The Warrants will expire seven years from their date of issuance.

The Company incurred $0.7 million of costs in connection with the Loan Agreement.  These costs, along with the allocated fair value of the Warrants issued for the first and second tranches which were treated as a debt discount, and are offset against the carrying value of the notes payable in the Company’s Consolidated Balance Sheet as of March 31, 2017 and December 31, 2016 and will be recognized as interest expense over the term of each applicable tranche using the effective interest method.  The final payments for the first and second loan tranches will be accrued as additional interest expense, using the effective interest method, over the term of the relevant loan tranche.  

The fair value of the Company’s notes payable is considered to approximate its carrying value because it bears interest at a variable interest rate.

 

 

Note 5:

Commitments and Contingencies

Legal Matters

From time to time, the Company is involved in various legal proceedings arising in the normal course of business. If a specific contingent liability is determined to be probable and can be reasonably estimated, the Company accrues and discloses the amount. The Company is not currently a party to any material legal proceedings.

13


 

Columbia University Agreement

In May 2015, the Company entered into a worldwide exclusive agreement with Columbia University (“Columbia”) to license certain intellectual property from Columbia. Under the agreement, the Company is obligated to pay to Columbia (1) an annual fee of $0.1 million from 2015 through 2021, (2) a potential regulatory milestone payment of $0.8 million and (3) potential royalty payments at a single digit royalty rate based on net sales of licensed products as defined in the agreement.

Novo Nordisk

In February 2007, the Company entered into an Agreement Concerning Glucokinase Activator (“GKA”) Project with Novo Nordisk A/S (the “Novo License Agreement”) whereby we obtained an exclusive, worldwide, sublicensable license under certain Novo Nordisk intellectual property rights to discover, develop, manufacture, have manufactured, use and commercialize products for the prevention, treatment, control, mitigation or palliation of human or animal diseases or conditions. As part of this license grant, the Company obtained certain worldwide rights to Novo Nordisk’s GKA program, including rights to preclinical and clinical compounds such as TTP399. Under the terms of the Novo License Agreement, the Company has additional potential developmental and regulatory milestone payments totaling up to $115.0 million for approval of a product. The Company may also be obligated to pay an additional $75.0 million in potential sales-based milestones, as well as royalty payments, at mid-single digit royalty rates, based on tiered sales of commercialized licensed products.

 

 

Note 6:

Redeemable Noncontrolling Interest

The Company is subject to the Exchange Agreement with respect to the vTv Units representing the 70.5% noncontrolling interest in vTv LLC outstanding as of March 31, 2017 (see Note 7). The Exchange Agreement requires the surrender of an equal number of vTv Units and Class B Common Stock for (i) shares of Class A Common Stock on a one-for-one basis or (ii) cash (based on the fair market value of the Class A Common Stock as determined pursuant to the Exchange Agreement), at the Company’s option (as the managing member of vTv LLC), subject to customary conversion rate adjustments for stock splits, stock dividends and reclassifications. The exchange value is determined based on a 20 day volume weighted average price of the Class A Common Stock as defined in the Exchange Agreement, subject to customary conversion rate adjustments for stock splits, stock dividends and reclassifications.

The redeemable noncontrolling interest is recognized at the higher of (1) the initial fair value plus accumulated earnings/losses associated with the noncontrolling interest or (2) the redemption value as of the balance sheet date. At March 31, 2017 and December 31, 2016, the redeemable noncontrolling interest was recorded based on the redemption value as of the balance sheet date of $141.7 million and $122.5 million, respectively.

 

 

Note 7:

Related-Party Transactions

PharmaCore, Inc.

Prior to its acquisition by Cambrex Corporation in October 2016, certain controlling shareholders of the Company also controlled PharmaCore, Inc. (“PharmaCore”) and PharmaCore was therefore considered to be a related party.  The Company purchased chemistry and Good Manufacturing Practices manufacturing services from PharmaCore. Total purchases from PharmaCore for the three months ended March 31, 2016 were $0.2 million.

MacAndrews & Forbes Incorporated

As of March 31, 2017, subsidiaries of MacAndrews & Forbes Incorporated (collectively “MacAndrews”) held 23,084,267 shares of the Company’s Class B Common Stock and 2,400,666 shares of the Company’s Class A Common Stock. As a result, MacAndrews’ holdings represent approximately 77.7% of the combined voting power of the Company’s outstanding common stock.

The Company has entered into several agreements with MacAndrews or its affiliates as part of the Reorganization Transactions as further detailed below:

Exchange Agreement

The Company and MacAndrews are party to an exchange agreement (the “Exchange Agreement”) pursuant to which the vTv Units (along with a corresponding number of shares of the Class B Common Stock) are exchangeable for (i) shares of the Class A Common Stock on a one-for-one basis or (ii) cash (based on the fair market value of the Class A Common Stock as determined pursuant to the Exchange Agreement), at the option of vTv Therapeutics Inc. (as the managing member of vTv LLC), subject to

14


 

customary conversion rate adjustments for stock splits, stock dividends and reclassifications. Any decision to require an exchange for cash rather than shares of Class A Common Stock will ultimately be determined by the entire board of directors of vTv Therapeutics Inc. (the “Board of Directors”). Any decision to require an exchange for cash rather than shares of Class A Common Stock will ultimately be determined by the entire Board of Directors. As of March 31, 2017, MacAndrews had not exchanged any shares under the provisions of this agreement.

Tax Receivable Agreement

The Company and MacAndrews are party to the Tax Receivable Agreement, which provides for the payment by the Company to M&F (or certain of its transferees or other assignees) of 85% of the amount of cash savings, if any, in U.S. federal, state and local income tax or franchise tax that the Company actually realizes (or, in some circumstances, the Company is deemed to realize) as a result of (a) the exchange of Class B Common Stock, together with the corresponding number of vTv Units, for shares of the Company’s Class A Common Stock (or for cash), (b) tax benefits related to imputed interest deemed to be paid by the Company as a result of the Tax Receivable Agreement and (c) certain tax benefits attributable to payments under the Tax Receivable Agreement.  

As no shares have been exchanged by MacAndrews pursuant to the Exchange Agreement (discussed above), the Company has not recognized any liability nor has it made any payments pursuant to the Tax Receivable Agreement as of March 31, 2017.

Investor Rights Agreement

The Company is party investor rights agreement with M&F, as successor in interest to vTv Therapeutics Holdings (the “Investor Rights Agreement”).  The Investor Rights Agreement provides M&F with certain demand, shelf and piggyback registration rights with respect to its shares of Class A Common Stock and also provides M&F with certain governance rights, depending on the size of its holdings of Class A Common Stock.  Under the Investor Rights Agreement, M&F was initially entitled to nominate a majority of the members of the Board of Directors and designate the members of the committees of the Board of Directors.

 

 

Note 8:

Income Taxes

The Company is subject to U.S. federal income taxes as well as state taxes. As a result of the Company’s operating losses, the Company did not record income tax expense for the three months ended March 31, 2017 and 2016. Management has evaluated the positive and negative evidence surrounding the realization of its deferred tax assets, including the Company’s history of losses, and under the applicable accounting standards determined that it is more-likely-than-not that the deferred tax assets will not be realized. The difference between the effective tax rate of the Company and the U.S. statutory tax rate of 34% is due to the valuation allowance against the Company’s expected net operating losses.

As discussed in Note 7, the Company is party to a tax receivable agreement with a related party which provides for the payment by the Company to vTv Therapeutics Holdings (or certain of its transferees or other assignees) of 85% of the amount of cash savings, if any, in U.S. federal, state and local income tax or franchise tax that the Company actually realizes (or, in some circumstances, the Company is deemed to realize) as a result of certain transactions. As there have been no transactions which are probable to occur which would trigger a liability under this agreement, the Company has not recognized any liability related to this agreement as of March 31, 2017.

 

 

Note 9:

Net Loss per Share

Basic loss per share is computed by dividing net loss attributable to vTv Therapeutics Inc. by the weighted-average number of shares of Class A Common Stock outstanding during the period. Diluted loss per share is computed giving effect to all potentially dilutive shares. Diluted loss per share for all periods presented is the same as basic loss per share as the inclusion of potentially issuable shares would be antidilutive.

15


 

A reconciliation of the numerator and denominator used in the calculation of basic and diluted net loss per share of Class A Common Stock is as follows (in thousands, except share and per share amounts):

 

 

For the Three Months Ended March 31,

 

 

2017

 

 

2016

 

Numerator:

 

 

 

 

 

 

 

Net loss

$

(14,286

)

 

$

(13,520

)

Less: Net loss attributable to noncontrolling interests

 

(10,066

)

 

 

(9,668

)

Net loss attributable to vTv Therapeutics Inc., basic

   and diluted

$

(4,220

)

 

$

(3,852

)

Denominator:

 

 

 

 

 

 

 

Weighted-average vTv Therapeutics Inc. Class A

   Common Stock, basic and diluted

 

9,693,254

 

 

 

9,229,645

 

Net loss per share of vTv Therapeutics Inc. Class A

   Common Stock, basic and diluted

$

(0.44

)

 

$

(0.42

)

 

Potentially dilutive securities not included in the calculation of diluted net loss per share are as follows:

 

 

March 31, 2017

 

 

March 31, 2016

 

Class B Common Stock (1)

 

23,119,246

 

 

 

23,463,241

 

Common stock options

 

1,915,101

 

 

 

1,004,934

 

Common stock warrants

 

190,586

 

 

 

 

Total

 

25,224,933

 

 

 

24,468,175

 

 

 

 

(1)

Shares of Class B Common Stock do not share in the Company’s earnings and are not participating securities.  Accordingly, separate presentation of loss per share of Class B Common Stock under the two-class method has not been provided.  Each share of Class B Common Stock (together with a corresponding vTv Unit) is exchangeable for one share of Class A Common Stock.  

 

 

 

16


 

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

As used in this Quarterly Report on Form 10-Q, the “Company”, the “Registrant”, “we” or “us” refer to vTv Therapeutics Inc. and “vTv LLC” refers to vTv Therapeutics LLC. The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our financial statements and related notes that appear elsewhere in this report. In addition to historical financial information, the following discussion contains forward-looking statements that reflect our plans, estimates, assumptions and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this report under “Part II, Other Information—Item 1A, Risk Factors.” Forward-looking statements include information concerning our possible or assumed future results of operations, business strategies and operations, financing plans, potential growth opportunities, potential market opportunities, potential results of our drug development efforts or trials, and the effects of competition. Forward-looking statements include all statements that are not historical facts and can be identified by terms such as “anticipates,” “believes,” “could,” “seeks,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts,” “projects,” “should,” “will,” “would” or similar expressions and the negatives of those terms. Given these uncertainties, you should not place undue reliance on these forward-looking statements. Also, forward-looking statements represent our management’s plans, estimates, assumptions and beliefs only as of the date of this report. Except as required by law, we assume no obligation to update these forward-looking statements publicly or to update the reasons actual results could differ materially from those anticipated in these forward-looking statements, even if new information becomes available in the future.

Overview

We are a clinical-stage biopharmaceutical company engaged in the discovery and development of orally administered small molecule drug candidates to fill significant unmet medical needs. We have a pipeline of clinical drug candidates, led by our programs for the treatment of Alzheimer’s disease (“AD”) and type 2 diabetes. Our drug candidate for the treatment of AD, azeliragon (TTP488), is an orally administered, small molecule antagonist targeting the receptor for advanced glycation endproducts (“RAGE”), for which we have commenced patient enrollment and have successfully completed the enrollment of sub-study A in a Phase 3 clinical trial (the “STEADFAST Study”) under a Food and Drug Administration (“FDA”) agreed Special Protocol Assessment (“SPA”). Our type 2 diabetes drug candidates include TTP399, an orally administered, liver-selective glucokinase activator (“GKA”), for which we completed a Phase 2b clinical trial (the “AGATA Study”) in August 2016, and TTP273, an orally administered, non-peptide agonist that targets the glucagon-like peptide-1 receptor (“GLP-1r”), for which we completed a Phase 2 clinical trial (the “LOGRA Study”) in December 2016. We have three additional programs in various stages of preclinical and clinical development for the prevention of muscle weakness and the treatment of inflammatory disorders.

17


 

The following table summarizes our current drug candidates and their respective stages of development:

 

vTv Therapeutics Inc. is a holding company, and its principal asset is a controlling equity interest in vTv Therapeutics LLC (“vTv LLC”), the principal operating subsidiary. The Company has determined that vTv LLC is a variable-interest entity (“VIE”) for accounting purposes and that vTv Therapeutics Inc. is the primary beneficiary of vTv LLC because (through its managing member interest in vTv LLC and the fact that the senior management of vTv Therapeutics Inc. 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. vTv Therapeutics Inc. has therefore consolidated vTv LLC’s results under the VIE accounting model in its consolidated financial statements.

To date, we have devoted substantially all of our resources to our research and development efforts relating to our drug candidates, including conducting clinical trials with our drug candidates, providing general and administrative support for these operations and protecting our intellectual property. We do not have any products approved for sale and have not generated any revenue from drug sales.  From our inception through March 31, 2017, we have funded our operations primarily through a combination of private placements of preferred equity, research collaboration agreements, upfront and milestone payments for license agreements, debt financing and the completion of our initial public offering (“IPO”) in August 2015.

We expect to continue to incur significant expenses and increasing operating losses for at least the next several years. We anticipate that our expenses will increase substantially as we:

 

continue the development of our lead drug candidate, azeliragon, for the treatment of AD;

 

seek to obtain regulatory approvals for azeliragon;

 

prepare for the potential commercialization of azeliragon;

 

begin outsourcing the commercial manufacturing of azeliragon for any indications for which we receive regulatory approval;

 

expand our research and development activities and advance our clinical programs, including our type 2 diabetes programs, TTP399 and TTP273; and

 

maintain, expand and protect our intellectual property portfolio.

18


 

We do not expect to generate revenue from drug sales unless and until we successfully complete development and obtain marketing approval for one or more of our drug candidates, which we expect will take a number of years and will be subject to significant uncertainty. Accordingly, we anticipate that we will need to raise additional capital in addition to the net proceeds of the IPO and the Loan Agreement prior to the commercialization of azeliragon or any of our other drug candidates. Until such time that we can generate substantial revenue from product sales, we expect to finance our operating activities through a combination of equity offerings, debt financings, marketing and distribution arrangements and other collaborations, strategic alliances and licensing arrangements. Nevertheless, we may be unable to raise additional funds or enter into such other arrangements when needed, on favorable terms or at all, which would have a negative impact on our liquidity and financial condition and could force us to delay, reduce the scope or eliminate one or more of our research and development programs or commercialization efforts. Failure to receive additional funding could cause us to cease operations, in part or in full.

Financial Overview

Revenue

To date, we have not generated any revenue from drug sales. All of our revenue to date has been primarily derived from up-front proceeds and research fees under collaboration and license agreements and government grants.

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 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 salaries, benefits and related overhead expenses for personnel in research and development functions and depreciation of leasehold improvements, laboratory equipment and computers.  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 March 31, 2017, we have incurred approximately $513.2 million in research and development expenses.

Our research and development expenses by project for the three months ended March 31, 2017 and 2016 were as follows (in thousands):

 

Three Months Ended March 31,

 

 

2017

 

 

2016

 

Direct research and development expense:

 

 

 

 

 

 

 

Azeliragon

$

8,070

 

 

$

7,304

 

TTP399

 

80

 

 

 

932

 

TTP273

 

180

 

 

 

715

 

Other projects

 

344

 

 

 

232

 

Indirect research and development expense

 

2,286

 

 

 

2,152

 

Total research and development expense

$

10,960

 

 

$

11,335

 

We plan to incur significant research and development expenses for the foreseeable future as we continue the development of azeliragon and to further advance the development of our other drug candidates, subject to the availability of additional funding.

19


 

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, if any; 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 and 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.

We expect that our general and administrative expenses will continue to increase as we operate as a public company and commercialize our drug candidates.  We also expect to incur additional costs in future periods as we continue to establish our investor relations function, implement a system of internal control over financial reporting and a system of disclosure controls and procedures that are compliant with applicable requirements and with corporate governance requirements and other rules of the stock exchange on which we are listed and other similar requirements applicable to public companies.

Interest Expense

Beginning in October 2016, interest expense primarily consists of cash and non-cash interest expense related to our Loan Agreement. Cash interest on the Loan Agreement is recognized at a floating interest rate equal to 10.5% plus the amount by which the one-month London Interbank Offer Rate (“LIBOR”) exceeds 0.5%.  Non-cash interest expense represents the amortization of the costs incurred in connection with the Loan Agreement, the allocated fair value of the warrants to purchase shares of our Class A Common Stock issued in connection with the Loan Agreement (the “Warrants”) and the accretion of the final interest payments (which will be paid in cash upon loan maturity), all of which are recognized in our Consolidated Statement of Operations using the effective interest method.

 

20


 

Results of Operations

Comparison of the three months ended March 31, 2017 and 2016

The following table sets forth certain information concerning our results of operations for the periods shown:

 

(dollars in thousands)

Three Months Ended March 31,

 

Statement of operations data:

2017

 

 

2016

 

 

Change

 

Revenue

$

30

 

 

$

376

 

 

$

(346

)

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

10,960

 

 

 

11,335

 

 

 

(375

)

General and administrative

 

2,824

 

 

 

2,581

 

 

 

243

 

Total operating expenses

 

13,784

 

 

 

13,916

 

 

 

(132

)

Operating loss

 

(13,754

)

 

 

(13,540

)

 

 

(214

)

Interest income

 

27

 

 

 

23

 

 

 

4

 

Interest expense

 

(559

)

 

 

(2

)

 

 

(557

)

Other income (expense), net

 

 

 

 

(1

)

 

 

1

 

Loss before income taxes

 

(14,286

)

 

 

(13,520

)

 

 

(766

)

Income tax provision

 

 

 

 

 

 

 

 

Net loss before noncontrolling interest

 

(14,286

)

 

 

(13,520

)

 

 

(766

)

Less:  net loss attributable to noncontrolling interest

 

(10,066

)

 

 

(9,668

)

 

 

(398

)

Net loss attributable to vTv Therapeutics Inc.

$

(4,220

)

 

$

(3,852

)

 

$

(368

)

 

Revenue

Revenue was insignificant for the three months ended March 31, 2017 and was $0.4 million for the three months ended March 31, 2016. The revenue earned during the three months ended March 31, 2016 was primarily attributable to the global license agreement that we entered into with Calithera Biosciences, Inc. (“Calithera”) in March 2015.

Research and Development Expenses

Research and development expenses were $11.0 million and $11.3 million for the three months ended March 31, 2017 and 2016, respectively. The decrease in research and development expenses during the period of $0.4 million, or 3.3%, was primarily due to:

 

An increase in clinical trial costs of $0.8 million for azeliragon in the first quarter of 2017, which was mainly driven by an increase of $1.8 million for the ongoing STEADFAST study as enrollment continues to increase, offset by a decrease of approximately $1.1 million related to a drug-drug interaction study that was ongoing in the first quarter of 2016, but is now largely complete;

 

Costs related to TTP399 in the first quarter of 2017 decreased $0.9 million from the three months ended March 31, 2016, due to the completion of the AGATA study in August 2016;

 

A decrease in clinical trial costs of $0.5 million for TTP273 in the first quarter of 2017, due to the completion of the LOGRA study in December 2016.  

General and Administrative Expenses

General and administrative expenses were $2.8 million and $2.6 million for the three months ended March 31, 2017 and 2016, respectively.  The increase in general and administrative expenses during the period of $0.2 million, or 9.4%, was primarily attributable to compensation expense related to the addition of personnel to support our compliance with public company requirements throughout 2016 and the expense related to share-based awards.

Interest Expense

Interest expense was $0.6 million and an insignificant amount for the three months ended March 31, 2017 and 2016, respectively. Interest expense recognized in 2016 relates to the cash and non-cash interest for our Loan Agreement which was finalized in late October 2016 and which bears interest at 10.5% plus the amount by which the one-month LIBOR exceeds 0.5%.  

21


 

Liquidity and Capital Resources

We anticipate that we will continue to incur losses for at least the next several years as we continue our clinical trials. While we believe that we will continue to meet our liquidity requirements over at least the next 12 months, we expect that our research and development and general and administrative expenses will continue to increase and, as a result, we expect that we will need additional capital to continue to fund our operations.  Our currently available sources of liquidity include our cash and cash equivalents of $45.2 million at March 31, 2017.  In addition to these sources of funds, we are seeking possible partnering opportunities for our GKA, GLP-1r and other drug candidates which we believe may provide additional cash for use in our operations and the continuation of the clinical trials for our drug candidates.  Further, the execution, prior to June 30, 2017, of a term sheet meeting the requirements set forth by our $25.0 million loan agreement (the “Loan Agreement”) with Horizon Technology Finance Corporation and Silicon Valley Bank (together, the “Lenders”), would allow us to borrow the $5.0 million third tranche the Loan Agreement.

Debt Transaction

In October 2016, we and vTv LLC entered into the Loan Agreement, under which we have borrowed $20.0 million with an additional $5.0 million third tranche available for borrowing no later than June 30, 2017 subject to receipt of an executed term sheet setting forth certain agreed upon upfront and clinical and regulatory milestone payments for the licensing or purchase of one of our main drug candidates and other customary closing conditions.  Each loan tranche bears interest at a floating rate equal to 10.5% plus the amount by which the one-month LIBOR exceeds 0.5%.  

We borrowed the first tranche of $12.5 million upon the close of the Loan Agreement in October 2016.  Payments with respect to the first tranche are payable on an interest only basis monthly until May 1, 2018, followed by equal monthly payments of principal plus accrued interest through the scheduled maturity date on May 1, 2020.  In addition, a final payment for the first tranche loan equal to $0.8 million will be due on May 1, 2020, or such earlier date specified in the Loan Agreement.  We borrowed the second tranche of $7.5 million in March 2017.  Payments with respect to the second tranche are payable on an interest only basis monthly until October 1, 2018, followed by equal monthly payments of principal plus accrued interest through the scheduled maturity date on October 1, 2020.  In addition, a final payment for the second tranche loan equal to $0.5 million will be due on October 1, 2020, or such earlier date specified in the Loan Agreement.

We have agreed to repay any amounts advanced under the third tranche of $5.0 million in 18 monthly payments of interest only followed by 24 equal monthly payments of principal plus accrued interest through the scheduled maturity date for such loans, which is 42 months following the date we draw down the second or third tranche loans, as applicable. In addition, a final payment equal to $0.3 million will be due on the scheduled maturity date for the third tranche loan, or on such earlier date specified in the Loan Agreement.

If we repay all or a portion of the loan prior to the applicable maturity date, we will pay the Lenders a prepayment penalty fee, based on a percentage of the then outstanding principal balance equal to 4.0% during the first 18 months following the funding of the second tranche and 2.0% thereafter.

In connection with the Loan Agreement, we have issued and are obligated to issue to the Lenders warrants to purchase shares of our Class A common stock.  On October 28, 2016, we issued Warrants to purchase 152,580 shares of our Class A common stock at a per share exercise price of $6.39 per share, which aggregate exercise price represents 6.0% of the principal amount borrowed under the first tranche of the Loan Agreement and 3.0% of the amount available under the second tranche of the Loan Agreement. On March 24, 2017, in connection with the funding of the second tranche, we issued Warrants to purchase 38,006 shares of our Class A common stock at a per share exercise price of $5.92 per share, which aggregate exercise price represents 3.0% of the principal amount of the second tranche. To the extent that the third tranche is borrowed under the Loan Agreement, we are obligated to issue to the Lenders Warrants with respect to a number of shares such that the aggregate exercise price of such warrants is equal to 6.0% of third loan tranche upon funding of the third tranche.  In each instance, the Warrants have or will have an exercise price equal to the lower of (a) the volume weighted average price per share of our Class A common stock, as reported on the principal stock exchange on which our Class A common stock is listed, for 10 trading days prior to the issuance of the applicable Warrants or (b) the closing price of a share of our Class A common stock on the trading day prior to the issuance of the applicable Warrants.  The Warrants will expire seven years from their date of issuance.

The Loan Agreement includes customary affirmative and restrictive covenants, including, but not limited to, restrictions on the payment of dividends or other equity distributions and the incurrence of debt or liens upon the assets of the Company or its subsidiaries.  The Loan Agreement does not contain any financial maintenance covenants.  The Loan Agreement includes customary events of default, including payment defaults, covenant defaults and material adverse change default.  Upon the occurrence of an event of default and following any applicable cure periods, a default interest rate of an additional 5% will be applied to the outstanding loan

22


 

balances, and the Lenders may declare all outstanding obligations immediately due and payable and take such other actions as set forth in the Loan Agreement.

Cash Flows

 

 

 

 

 

 

 

March 31,

 

 

 

2017

 

 

2016

 

(dollars in thousands)

 

 

 

 

 

 

 

 

Net cash used in operating activities

 

$

(13,816

)

 

$

(12,502

)

Net cash used in investing activities

 

 

(39

)

 

 

 

Net cash provided by financing activities

 

 

7,500

 

 

 

 

Net decrease in cash and cash equivalents

 

$

(6,355

)

 

$

(12,502

)

 

Operating Activities

For the three months ended March 31, 2017, our net cash used in operating activities increased $1.3 million from the three months ended March 31, 2016.  The increased use of cash was primarily driven by the increased spending on our clinical trials and a higher usage of existing working capital.

Investing Activities

For the three months ended March 31, 2017 and 2016, net cash used in investing activities was insignificant.

 Financing Activities

For the three months ended March 31, 2017, our cash provided by financing activities was driven primarily by the borrowing of the $7.5 million second tranche available to us under our Loan Agreement.  

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 significant revenue from drug sales unless and until we obtain regulatory approval of and commercialize azeliragon or any of our other drug candidates. At the same time, we expect our expenses to continue 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 will also continue to use cash to fund expenses related to our compliance with requirements applicable to us as a listed public company.

Based upon our current operating plan, we believe that our existing cash and cash equivalents and funds available to us under our Loan Agreement will enable us to fund our operating expenses and capital requirements through the receipt of results for Part A of our STEADFAST Study. We intend to use our existing cash and cash equivalents to fund the STEADFAST Study, and any additional clinical or preclinical studies necessary to support and to submit an application for azeliragon.  However, our current cash, cash equivalents and funds available to us under our Loan Agreement will not be sufficient for us to complete the STEADFAST Study, and we will need to raise additional capital to complete the development, regulatory submission and commercialization of azeliragon.  We are and plan to continue to pursue partnering arrangements with other pharmaceutical companies for our GKA, GLP-1r and other pipeline programs which may provide additional capital if consummated.  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 the STEADFAST Study, and the clinical development of azeliragon;

 

the willingness of the FDA to accept the STEADFAST Study, as well as our other completed and planned clinical and preclinical studies and other work, as the basis for review and approval of azeliragon;

23


 

 

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; and

 

the amount of any payments we are required to make to M&F TTP Holdings LLC in the future under the Tax Receivable Agreement.

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 to us through the Loan Agreement. 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.

Disclosures About Contractual Obligations and Commitments

The following table summarizes our contractual obligations at March 31, 2017 (in thousands):

 

 

 

 

 

 

Nine months ended December 31,

 

 

Years ended December 31,

 

 

Total

 

 

2017

 

 

2018 - 2020

 

 

2021 - 2022

 

 

2023 and thereafter

 

Principal payments under Loan Agreement

$

20,000

 

 

$

 

 

$

20,000

 

 

$

 

 

$

 

Interest on Loan Agreement (1)

 

6,233

 

 

 

1,625

 

 

 

4,608

 

 

 

 

 

 

 

Operating lease commitments

 

605

 

 

 

355

 

 

 

250

 

 

 

 

 

 

 

Total contractual obligations

$

26,838

 

 

$

1,980

 

 

$

24,858

 

 

$

 

 

$

 

 

(1)

Interest payments associated with the Loan Agreement are projected based on interest rates in effect as of March 31, 2017 assuming no variable rate fluctuations going forward.  An increase in the interest rates applicable to our Loan Agreement by 1% would result in an additional $0.2 million of annual cash interest expense.  In addition to the estimated monthly cash interest payments, the projected interest payments stated above also include the 6% final interest payment to be paid upon the maturity of the debt obligation.

Off-Balance Sheet Arrangements

During the periods presented, we did not have, nor do we currently have, any off-balance sheet arrangements as defined under SEC rules.

24


 

Discussion of Critical Accounting Policies

For a discussion of our critical accounting policies and estimates, please refer to Part II, Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2016. There have been no material changes to our critical accounting policies and estimates in 2017.

Forward-Looking Statements

This quarterly report includes certain forward-looking statements within the meaning of the federal securities laws regarding, among other things, our management’s intentions, plans, beliefs, expectations or predictions of future events, which are considered forward-looking statements. You should not place undue reliance on those statements because they are subject to numerous uncertainties and factors relating to our operations and business environment, all of which are difficult to predict and many of which are beyond our control. Forward-looking statements include information concerning our possible or assumed future results of operations, including descriptions of our business strategy. These statements often include words such as “may,” “will,” “should,” “believe,” “expect,” “anticipate,” “intend,” “plan,” “estimate” or similar expressions. These statements are based upon assumptions that we have made in light of our experience in the industry, as well as our perceptions of historical trends, current conditions, expected future developments and other factors that we believe are appropriate under the circumstances. As you read this quarterly report, you should understand that these statements are not guarantees of performance or results. They involve known and unknown risks, uncertainties and assumptions, including those described under the heading “Risk Factors” under Item 1A of Part I in our Annual Report on Form 10-K. Although we believe that these forward-looking statements are based upon reasonable assumptions, you should be aware that many factors, including those described under the heading “Risk Factors” under Item 1A of Part I in our Annual Report on Form 10-K, could affect our actual financial results or results of operations and could cause actual results to differ materially from those in the forward-looking statements.

Our forward-looking statements made herein are made only as of the date of this quarterly report. We expressly disclaim any intent, obligation or undertaking to update or revise any forward-looking statements made herein to reflect any change in our expectations with regard thereto or any change in events, conditions or circumstances on which any such statements are based. All subsequent written and oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the cautionary statements contained in this quarterly report.

Effect of Recent Accounting Pronouncements

See discussion of recent accounting pronouncements in Note 2, “Summary of Significant Accounting Policies”, to the Condensed Consolidated Financial Statements in this Form 10-Q.

 

 

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest Rate Risk

Our Loan Agreement bears interest at a floating rate equal to 10.5% plus the amount by which the one-month LIBOR exceeds 0.5%.  A one percent increase in the variable rate of interest on the Loan Agreement would increase interest expense by approximately $0.2 million annually based on the amounts currently outstanding. We do not currently hedge our interest rate exposure.

Market Risk

Our exposure to market risk is limited to our cash, cash equivalents and marketable securities, all of which have maturities of one year or less. The goals of our investment strategy are preservation of capital, fulfillment of liquidity needs and fiduciary control of cash and investments. We also seek to maximize income from our investments without assuming significant risk. To achieve our goals, we maintain a portfolio of cash equivalents and investments in a variety of securities that management believes to be of high credit quality. The securities in our investment portfolio are not leveraged, are classified as available for sale and are, due to their short-term nature, subject to minimal interest rate risk. Because of the short-term maturities of our investments, we do not believe that an increase in market rates would have a material negative impact on the value of our investment portfolio.

Foreign Currency Risk

We do not have any material foreign currency exposure

 

 

25


 

ITEM 4.

CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, management has evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) of the Securities Exchange Act of 1934) as of March 31, 2017. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of March 31, 2017, our disclosure controls and procedures were effective in causing material information relating to us (including our consolidated subsidiaries) to be recorded, processed, summarized and reported by management on a timely basis and to ensure the quality and timeliness of our public disclosures pursuant to SEC disclosure obligations.

Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, with the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error and mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by management override of controls.

The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, a control may become inadequate because of changes in conditions or because the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and may not be detected.

Changes to Internal Control over Financial Reporting

There have been no changes in our internal control over financial reporting other than those described above that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Website Availability of Reports and other Corporate Governance Information

The Company maintains a comprehensive corporate governance program, including Corporate Governance Guidelines for its Board of Directors, Board Guidelines for Assessing Director Independence and charters for its Audit Committee, Nominating and Corporate Governance Committee and Compensation Committee. The Company maintains a corporate investor relations website, www.vtvtherapeutics.com, where stockholders and other interested persons may review, without charge, among other things, corporate governance materials and certain SEC filings, which are generally available on the same business day as the filing date with the SEC on the SEC’s website http://www.sec.gov.

 

 

PART II – OTHER INFORMATION

 

 

ITEM 1.

LEGAL PROCEEDINGS

We are not currently a party to any material legal proceedings.

 

 

ITEM 1A.

RISK FACTORS

In addition to the other information in this report, investors should carefully consider the risk factors set forth under the heading "Risk Factors" under Item 1A of Part I in our Annual Report on Form 10-K for the year ended December 31, 2016.

 

 

ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None.

 

 

ITEM 3.

DEFAULTS UPON SENIOR SECURITIES

None.

26


 

 

 

ITEM 4.

MINE SAFETY DISCLOSURES

None.

 

 

ITEM 5.

OTHER INFORMATION

None.

 

 

27


 

ITEM 6.

EXHIBITS

 

Exhibit
Number

 

Description

 

 

 

  10.1

 

vTv Therapeutics Inc. Form of Restricted Stock Unit Award Agreement.

 

 

 

  31.1

 

Certification of President and Chief Executive Officer required by Rule 13a-14(a)/15d-14(a) under the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

 

 

  31.2

 

Certification of Chief Financial Officer required by Rule 13a-14(a)/15d-14(a) under the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

 

 

  32.1

 

Certification of President and Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

 

 

  32.2

 

Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

 

 

101.INS

 

XBRL Instance Document

 

 

 

101.SCH

 

XBRL Taxonomy Extension Schema

 

 

 

101.CAL

 

XBRL Taxonomy Extension Calculation Linkbase

 

 

 

101.DEF

 

XBRL Taxonomy Extension Definition Document

 

 

 

101.LAB

 

XBRL Taxonomy Extension Label Linkbase

 

 

 

101.PRE

 

XBRL Taxonomy Extension Presentation Linkbase

 

 

28


 

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Date: May 3, 2017

 

 

 

VTV THERAPEUTICS INC.

 

 

(Registrant)

 

 

 

By:

 

/s/ Stephen L. Holcombe

 

 

Stephen L. Holcombe

 

 

President and Chief Executive Officer

 

 

 

By:

 

/s/ Rudy C. Howard

 

 

Rudy C. Howard

 

 

Chief Financial Officer

 

 

29


 

EXHIBIT INDEX

 

Exhibit
Number

 

Description

 

 

 

  10.1

 

vTv Therapeutics Inc. Form of Restricted Stock Unit Award Agreement.

 

 

 

  31.1

 

Certification of President and Chief Executive Officer required by Rule 13a-14(a)/15d-14(a) under the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

 

 

  31.2

 

Certification of Chief Financial Officer required by Rule 13a-14(a)/15d-14(a) under the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

 

 

  32.1

 

Certification of President and Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

 

 

  32.2

 

Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

 

 

101.INS

 

XBRL Instance Document

 

 

 

101.SCH

 

XBRL Taxonomy Extension Schema

 

 

 

101.CAL

 

XBRL Taxonomy Extension Calculation Linkbase

 

 

 

101.DEF

 

XBRL Taxonomy Extension Definition Document

 

 

 

101.LAB

 

XBRL Taxonomy Extension Label Linkbase

 

 

 

101.PRE

 

XBRL Taxonomy Extension Presentation Linkbase

 

 

30

vtvt-ex101_354.htm

Exhibit 10.1

VTV THERAPEUTICS INC.

2015 OMNIBUS EQUITY INCENTIVE PLAN

RESTRICTED STOCK UNIT AWARD AGREEMENT

THIS RESTRICTED STOCK UNIT AWARD AGREEMENT (the “Agreement”), is entered into as of [________] (the “Date of Grant”), by and between vTv Therapeutics Inc., a Delaware corporation (the “Company”), and [___________] (the “Participant”).

WHEREAS, the Company has adopted the vTv Therapeutics Inc. 2015 Omnibus Equity Incentive Plan (the “Plan”), pursuant to which Restricted Stock Units (“RSUs”) may be granted; and

WHEREAS, the Compensation Committee of the Board of Directors of the Company (the “Committee”) has determined that it is in the best interests of the Company and its stockholders to grant the RSUs provided for herein to the Participant subject to the terms set forth herein.

NOW, THEREFORE, for and in consideration of the premises and the covenants of the parties contained in this Agreement, and for other good and valuable consideration, the receipt of which is hereby acknowledged, the parties hereto, for themselves, their successors and assigns, hereby agree as follows:

1.

Grant of Restricted Stock Units.

(a)Grant. The Company hereby grants to the Participant a total of [________] RSUs, on the terms and conditions set forth in this Agreement and as otherwise provided in the Plan.  The RSUs shall vest in accordance with Section ‎2.  The RSUs shall be credited to a separate book-entry account maintained for the Participant on the books of the Company.

(b)Incorporation by Reference. The provisions of the Plan are incorporated herein by reference. Except as otherwise expressly set forth herein, this Agreement shall be construed in accordance with the provisions of the Plan and any interpretations, amendments, rules and regulations promulgated by the Committee from time to time pursuant to the Plan.  Any capitalized terms not otherwise defined in this Agreement shall have the definitions set forth in the Plan.  The Committee shall have final authority to interpret and construe the Plan and this Agreement and to make any and all determinations under them, and its decision shall be binding and conclusive upon the Participant and his or her legal representative in respect of any questions arising under the Plan or this Agreement.  The Participant acknowledges that he or she has received a copy of the Plan and has had an opportunity to review the Plan and agrees to be bound by all the terms and provisions of the Plan.

2.Vesting; Settlement.  

(a)The RSUs shall be one hundred percent (100%) unvested on the Date of Grant.  Except as may otherwise be provided herein, subject to the Participant’s continued employment with the Company or an Affiliate, the RSUs shall become vested in equal installments on each of the first [________] anniversaries of the Date of Grant (each such date, a “Vesting Date”).  Any fractional Class A Common Stock resulting from the application of the vesting schedule shall be aggregated and the RSUs resulting from such aggregation shall vest on the final Vesting Date.

(b)Each RSU shall be settled within 30 days following the Vesting Date, in shares of Class A Common Stock.

3.Termination of Employment.  

 


 

(a)Except as otherwise provided herein or as otherwise provided in an employment agreement, consulting agreement or other written agreement between the Participant and the Company or any of its Affiliates, upon any termination of employment, any remaining unvested portion of the RSU shall be cancelled immediately and the Participant shall immediately forfeit any rights to RSUs subject to such remaining unvested portion.  

 

(b)If the Participant’s employment or service with the Company and its Affiliates terminates for any reason other than as set forth in Section 3‎(a) hereof, the unvested portion of the RSU shall be cancelled immediately and the Participant shall immediately forfeit any rights to the RSUs subject to such unvested portion.

 

4.Rights as a Stockholder.  The Participant shall not be deemed for any purpose to be the owner of any shares of Class A Common Stock underlying the RSUs unless, until and to the extent that (i) the Company shall have issued and delivered to the Participant the shares of Class A Common Stock underlying the RSUs and (ii) the Participant’s name shall have been entered as a stockholder of record with respect to such shares of Class A Common Stock on the books of the Company.  The Company shall cause the actions described in clauses (i) and (ii) of the preceding sentence to occur promptly following settlement as contemplated by this Agreement, subject to compliance with applicable laws.

5.Compliance with Legal Requirements.  

(a)Generally. The granting and settlement of the RSUs, and any other obligations of the Company under this Agreement, shall be subject to all applicable U.S. federal, state and local laws, rules and regulations, all applicable non-U.S. laws, rules and regulations and to such approvals by any regulatory or governmental agency as may be required. The Participant agrees to take all steps the Committee or the Company determines are reasonably necessary to comply with all applicable provisions of U.S. federal and state securities law and non-U.S. securities law in exercising his rights under this Agreement.  

(b)Tax Withholding. Vesting and settlement of the RSUs shall be subject to the Participant satisfying any applicable U.S. federal, state and local tax withholding obligations and non-U.S. tax withholding obligations. The Company shall have the right and is hereby authorized to withhold from any amounts payable to the Participant in connection with the RSUs or otherwise the amount of any required withholding taxes in respect of the RSUs, their settlement or any payment or transfer of the RSUs or under the Plan and to take any such other action as the Committee or the Company deem necessary to satisfy all obligations for the payment of such withholding taxes.  The Committee may, in its sole discretion, permit the Participant to satisfy, in whole or in part, the tax obligations by withholding shares of Class A Common Stock that would otherwise be deliverable to the Participant upon settlement of the RSUs with a Fair Market Value equal to such withholding liability (but no more than the minimum required statutory withholding liability).1  

6.Clawback.  Notwithstanding anything to the contrary contained herein, the Committee may cancel the RSU award if the Participant, without the consent of the Company, has engaged in or engages in activity that is in conflict with or adverse to the interest of the Company or any Affiliate while employed by or providing services to the Company or any Affiliate, including fraud or conduct contributing to any financial restatements or irregularities, or violates a non-competition, non-solicitation, non-disparagement or non-disclosure covenant or agreement with the Company or any Affiliate, as

 

1

Tax Witholding provision modified, as needed, to the extent that Participant is classified as an independent contractor to the Company.

2


 

determined by the Committee.  In such event, the Participant will forfeit any compensation, gain or other value realized thereafter on the vesting or settlement of the RSUs, the sale or other transfer of the RSUs, or the sale of shares of Class A Common Stock acquired in respect of the RSUs, and must promptly repay such amounts to the Company.  If the Participant receives any amount in excess of what the Participant should have received under the terms of the RSUs for any reason (including without limitation by reason of a financial restatement, mistake in calculations or other administrative error), all as determined by the Committee, then the Participant shall be required to promptly repay any such excess amount to the Company.  To the extent required by applicable law and/or the rules and regulations of NASDAQ or any other securities exchange or inter-dealer quotation system on which the Class A Common Stock is listed or quoted, or if so required pursuant to a written policy adopted by the Company, the RSUs shall be subject (including on a retroactive basis) to clawback, forfeiture or similar requirements (and such requirements shall be deemed incorporated by reference into this Agreement).

7.Restrictive Covenants.  In the event that the Participant violates any restrictive covenants applicable to the Participant, in addition to any other remedy which may be available at law or in equity, the RSU shall be forfeited effective as of the date on which such violation first occurs, unless otherwise determined by the Committee.  The foregoing rights and remedies are in addition to any other rights and remedies that may be available to the Company and shall not prevent (and the Participant shall not assert that they shall prevent) the Company from bringing one or more actions in any applicable jurisdiction to recover damages as a result of the Participant’s breach of such restrictive covenants.

8.

Miscellaneous.

(a)Transferability. The RSUs may not be assigned, alienated, pledged, attached, sold or otherwise transferred or encumbered (a “Transfer”) by the Participant other than by will or by the laws of descent and distribution, pursuant to a qualified domestic relations order or as otherwise permitted under Section 15(b) of the Plan. Any attempted Transfer of the RSUs contrary to the provisions hereof, and the levy of any execution, attachment or similar process upon the RSUs, shall be null and void and without effect.

(b)Waiver. Any right of the Company contained in this Agreement may be waived in writing by the Committee. No waiver of any right hereunder by any party shall operate as a waiver of any other right, or as a waiver of the same right with respect to any subsequent occasion for its exercise, or as a waiver of any right to damages. No waiver by any party of any breach of this Agreement shall be held to constitute a waiver of any other breach or a waiver of the continuation of the same breach.

(c)Section 409A. The RSUs are intended to be exempt from, or compliant with, Section 409A of the Code. Notwithstanding the foregoing or any provision of the Plan or this Agreement, if any provision of the Plan or this Agreement contravenes Section 409A of the Code or could cause the Participant to incur any tax, interest or penalties under Section 409A of the Code, the Committee may, in its sole discretion and without the Participant’s consent, modify such provision to (i) comply with, or avoid being subject to, Section 409A of the Code, or to avoid the incurrence of taxes, interest and penalties under Section 409A of the Code, and/or (ii) maintain, to the maximum extent practicable, the original intent and economic benefit to the Participant of the applicable provision without materially increasing the cost to the Company or contravening the provisions of Section 409A of the Code. This Section 8(c) does not create an obligation on the part of the Company to modify the Plan or this Agreement and does not guarantee that the RSUs will not be subject to interest and penalties under Section 409A.

(d)General Assets. All amounts credited in respect of the RSUs to the book-entry account under this Agreement shall continue for all purposes to be part of the general assets of the Company.  The

3


 

Participant’s interest in such account shall make the Participant only a general, unsecured creditor of the Company.

(e)Notices. Any notices provided for in this Agreement or the Plan shall be in writing and shall be deemed sufficiently given if either hand delivered or if sent by fax, pdf/email or overnight courier, or by postage paid first class mail. Notices sent by mail shall be deemed received three business days after mailing but in no event later than the date of actual receipt. Notices shall be directed, if to the Participant, at the Participant’s address indicated by the Company’s records, or if to the Company, to the attention of the Chief Financial Officer at the Company’s principal executive office.

(f)Severability. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, and each other provision of this Agreement shall be severable and enforceable to the extent permitted by law.

(g)No Rights to Employment or Service. Nothing contained in this Agreement shall be construed as giving the Participant any right to be retained, in any position, as an employee, consultant or director of the Company or its Affiliates or shall interfere with or restrict in any way the rights of the Company or its Affiliates, which are hereby expressly reserved, to remove, terminate or discharge the Participant at any time for any reason whatsoever.

(h)Fractional Shares. In lieu of issuing a fraction of a share of Class A Common Stock resulting from adjustment of the RSUs pursuant to Section 12 of the Plan or otherwise, the Company shall be entitled to pay to the Participant an amount in cash equal to the Fair Market Value of such fractional share.

(i)Beneficiary. The Participant may file with the Committee a written designation of a beneficiary on such form as may be prescribed by the Committee and may, from time to time, amend or revoke such designation.

(j)Successors. The terms of this Agreement shall be binding upon and inure to the benefit of the Company and its successors and assigns, and of the Participant and the beneficiaries, executors, administrators, heirs and successors of the Participant.

(k)Entire Agreement. This Agreement and the Plan contain the entire agreement and understanding of the parties hereto with respect to the subject matter contained herein and supersede all prior communications, representations and negotiations in respect thereto. No change, modification or waiver of any provision of this Agreement shall be valid unless the same be in writing and signed by the parties hereto, except for any changes permitted without consent under Section 12 or 14 of the Plan.

(l)Governing Law and Venue. This Agreement shall be construed and interpreted in accordance with the laws of the State of Delaware, without regard to principles of conflicts of laws thereof, or principles of conflicts of laws of any other jurisdiction which could cause the application of the laws of any jurisdiction other than the State of Delaware.  

(i)Dispute Resolution; Consent to Jurisdiction. All disputes between or among any Persons arising out of or in any way connected with the Plan, this Agreement or the RSUs shall be solely and finally settled by the Committee, acting in good faith, the determination of which shall be final.   Any matters not covered by the preceding sentence shall be solely and finally settled in accordance with the Plan, and the Participant and the Company consent to the personal jurisdiction of the United States Federal and state courts sitting in Wilmington, Delaware as the exclusive jurisdiction with respect to matters arising out of or related to the enforcement of the

4


 

Committee’s determinations and resolution of matters, if any, related to the Plan or this Agreement not required to be resolved by the Committee.  Each such Person hereby irrevocably consents to the service of process of any of the aforementioned courts in any such suit, action or proceeding by the mailing of copies thereof by registered or certified mail, postage prepaid, to the last known address of such Person, such service to become effective ten (10) days after such mailing.

(ii)Waiver of Jury Trial. Each party hereto hereby waives, to the fullest extent permitted by applicable law, any right it may have to a trial by jury in any legal proceeding directly or indirectly arising out of or relating to this Agreement or the transactions contemplated (whether based on contract, tort or any other theory).  Each party hereto (A) certifies that no representative, agent or attorney of any other party has represented, expressly or otherwise, that such other party would not, in the event of litigation, seek to enforce the foregoing waiver and (B) acknowledges that it and the other parties hereto have been induced to enter into this Agreement by, among other things, the mutual waivers and certifications in this section.  

(m)Headings; Gender. The headings of the Sections hereof are provided for convenience only and are not to serve as a basis for interpretation or construction, and shall not constitute a part, of this Agreement.  Masculine pronouns and other words of masculine gender shall refer to both men and women as appropriate.

(n)Counterparts. This Agreement may be executed in one or more counterparts (including via facsimile and electronic image scan (pdf)), each of which shall be deemed to be an original, but all of which together shall constitute one and the same instrument and shall become effective when one or more counterparts have been signed by each of the parties and delivered to the other parties.

(o)Electronic Signature and Delivery. This Agreement may be accepted by return signature or by electronic confirmation.  By accepting this Agreement, the Participant consents to the electronic delivery of prospectuses, annual reports and other information required to be delivered by U.S. Securities and Exchange Commission rules (which consent may be revoked in writing by the Participant at any time upon three business days’ notice to the Company, in which case subsequent prospectuses, annual reports and other information will be delivered in hard copy to the Participant).

(p)Electronic Participation in Plan. The Company may, in its sole discretion, decide to deliver any documents related to current or future participation in the Plan by electronic means.  The Participant hereby consents to receive such documents by electronic delivery and agrees to participate in the Plan through an on-line or electronic system established and maintained by the Company or a third party designated by the Company.

 

 

[Remainder of page intentionally blank]

 

 

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Exhibit 10.1

IN WITNESS WHEREOF, this Agreement has been executed by the Company and the Participant as of the day first written above.

 

VTV THERAPEUTICS INC.

By:

     Name:  

     Title:    

 

 

 

 

 

 

[PARTICIPANT]

 

 

 

 

[Signature Page [last name] – RSU Award Agreement]

vtvt-ex311_7.htm

Exhibit 31.1

SECTION 302 CERTIFICATION

I, Stephen L. Holcombe, certify that:

 

1.

I have reviewed this quarterly report on Form 10-Q of vTv Therapeutics Inc. (the “registrant”);

 

2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3.

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4.

The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

 

(a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

(b)

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

(c)

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5.

The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

(a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

(b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 3, 2017

 

By:

 

/s/ Stephen L. Holcombe

 

 

Stephen L. Holcombe

 

 

President and Chief Executive Officer

 

vtvt-ex312_9.htm

Exhibit 31.2

SECTION 302 CERTIFICATION

I, Rudy C. Howard, certify that:

 

1.

I have reviewed this quarterly report on Form 10-Q of vTv Therapeutics Inc. (the “registrant”);

 

2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3.

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;