10-Q 1 vtvt-10q_20200630.htm 10-Q vtvt-10q_20200630.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 June 30, 2020

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.)

 

 

 

3980 Premier Dr, Suite 310

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)

 

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Class A common stock, par value $0.01 per share

VTVT

NASDAQ Capital Market

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 every Interactive Data File required to be submitted 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 such files).    Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth 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 August 3, 2020

 

Class A common stock, par value $0.01 per share

 

 

47,958,983

 

Class B common stock, par value $0.01 per share

 

 

23,094,221

 

 

 


 

vTv THERAPEUTICS INC. AND SUBSIDIARIES

INDEX TO FORM 10-Q

FOR THE QUARTER ENDED June 30, 2020

 

 

 

 

 

PAGE
NUMBER

 

 

 

 

PART I – FINANCIAL INFORMATION

 

 

 

 

 

 

 

Item 1.

  

Condensed Consolidated Balance Sheets as of June 30, 2020 (Unaudited) and December 31, 2019

  

4

 

 

 

 

 

 

 

Unaudited Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2020 and 2019

 

5

 

 

 

 

 

 

 

Unaudited Condensed Consolidated Statement of Changes in Redeemable Noncontrolling Interest and Stockholders’ Deficit for the three and six months ended June 30, 2020 and 2019

 

6

 

 

 

 

 

 

 

Unaudited Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2020 and 2019

 

8

 

 

 

 

 

 

 

Notes to Unaudited Consolidated Financial Statements

 

9

 

 

 

 

 

Item 2.

 

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

 

23

 

 

 

 

 

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

 

32

 

 

 

 

 

Item 4.

 

Controls and Procedures

 

33

 

 

 

 

PART II – OTHER INFORMATION

 

 

 

 

 

 

 

Item 1.

 

Legal Proceedings

 

33

 

 

 

 

 

Item 1A.

 

Risk Factors

 

33

 

 

 

 

 

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

34

 

 

 

 

 

Item 3.

 

Defaults Upon Senior Securities

 

34

 

 

 

 

 

Item 4.

 

Mine Safety Disclosures

 

34

 

 

 

 

 

Item 5.

 

Other Information

 

35

 

 

 

 

 

Item 6.

 

Exhibits

 

36

 

 

 

 

 

 

 

Signatures

 

37

 

 

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)

 

 

June 30,

 

 

December 31,

 

 

2020

 

 

2019

 

 

(Unaudited)

 

 

 

 

 

Assets

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

Cash and cash equivalents

$

6,392

 

 

$

1,777

 

Accounts receivable, net

 

 

 

 

5

 

Prepaid expenses and other current assets

 

299

 

 

 

806

 

Current deposits

 

87

 

 

 

250

 

Total current assets

 

6,778

 

 

 

2,838

 

Restricted cash and cash equivalents, long-term

 

 

 

 

2,500

 

Property and equipment, net

 

412

 

 

 

461

 

Operating lease right-of-use assets

 

514

 

 

 

543

 

Long-term investments

 

2,480

 

 

 

2,480

 

Long-term deposits

 

444

 

 

 

444

 

Total assets

$

10,628

 

 

$

9,266

 

Liabilities, Redeemable Noncontrolling Interest and Stockholders’ Deficit

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

Accounts payable and accrued expenses

$

6,697

 

 

$

7,068

 

Current portion of operating lease liabilities

 

143

 

 

 

110

 

Current portion of contract liabilities

 

31

 

 

 

31

 

Current portion of notes payable

 

4,543

 

 

 

6,172

 

Total current liabilities

 

11,414

 

 

 

13,381

 

Contract liabilities, net of current portion

 

1,025

 

 

 

1,033

 

Operating lease liabilities, net of current portion

 

756

 

 

 

831

 

Warrant liability, related party

 

3,529

 

 

 

2,601

 

Other liabilities

 

54

 

 

 

260

 

Total liabilities

 

16,778

 

 

 

18,106

 

Commitments and contingencies

 

 

 

 

 

 

 

Redeemable noncontrolling interest

 

63,378

 

 

 

40,183

 

Stockholders’ deficit:

 

 

 

 

 

 

 

Class A Common Stock, $0.01 par value; 100,000,000 shares authorized, 47,943,495

   and 40,918,522 shares outstanding as of June 30, 2020 and December 31, 2019,

   respectively

 

479

 

 

 

409

 

Class B Common Stock, $0.01 par value; 100,000,000 shares authorized, and 23,094,221

  outstanding as of June 30, 2020 and December 31, 2019

 

232

 

 

 

232

 

Additional paid-in capital

 

198,634

 

 

 

183,858

 

Accumulated deficit

 

(268,873

)

 

 

(233,522

)

Total stockholders’ deficit attributable to vTv Therapeutics Inc.

 

(69,528

)

 

 

(49,023

)

Total liabilities, redeemable noncontrolling interest and stockholders’ deficit

$

10,628

 

 

$

9,266

 

 

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

 

 

Six Months Ended

 

 

June 30,

 

 

June 30,

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Revenue

$

 

 

$

1,828

 

 

$

8

 

 

$

2,749

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

2,509

 

 

 

4,228

 

 

 

6,713

 

 

 

7,050

 

General and administrative

 

1,695

 

 

 

2,392

 

 

 

4,145

 

 

 

4,778

 

Total operating expenses

 

4,204

 

 

 

6,620

 

 

 

10,858

 

 

 

11,828

 

Operating loss

 

(4,204

)

 

 

(4,792

)

 

 

(10,850

)

 

 

(9,079

)

Other income

 

 

 

 

1

 

 

 

 

 

 

1

 

Other (expense) income – related party

 

(565

)

 

 

275

 

 

 

(928

)

 

 

1,196

 

Interest income

 

 

 

 

16

 

 

 

12

 

 

 

26

 

Interest expense

 

(222

)

 

 

(514

)

 

 

(390

)

 

 

(1,140

)

Loss before income taxes and noncontrolling interest

 

(4,991

)

 

 

(5,014

)

 

 

(12,156

)

 

 

(8,996

)

Income tax provision

 

 

 

 

100

 

 

 

 

 

 

100

 

Net loss before noncontrolling interest

 

(4,991

)

 

 

(5,114

)

 

 

(12,156

)

 

 

(9,096

)

Less:  net loss attributable to noncontrolling interest

 

(1,623

)

 

 

(2,232

)

 

 

(4,064

)

 

 

(4,059

)

Net loss attributable to vTv Therapeutics Inc.

$

(3,368

)

 

$

(2,882

)

 

$

(8,092

)

 

$

(5,037

)

Net loss attributable to vTv Therapeutics Inc. common shareholders

$

(3,368

)

 

$

(2,882

)

 

$

(8,092

)

 

$

(8,765

)

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

   Stock, basic and diluted

$

(0.07

)

 

$

(0.10

)

 

$

(0.18

)

 

$

(0.34

)

Weighted-average number of vTv Therapeutics Inc. Class A

   Common Stock, basic and diluted

 

45,661,221

 

 

 

28,037,628

 

 

 

44,561,886

 

 

 

25,464,562

 

 

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)

 

For the three months ended June 30, 2020

 

 

 

 

 

 

Class A Common Stock

 

 

Class B Common Stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Redeemable

Noncontrolling

Interest

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Additional

Paid-in

Capital

 

 

Accumulated Deficit

 

 

Total Stockholders' Deficit

 

Balance at March 31, 2020

$

52,196

 

 

 

44,680,189

 

 

$

447

 

 

 

23,094,221

 

 

$

232

 

 

$

190,200

 

 

$

(252,700

)

 

$

(61,821

)

Net loss

 

(1,623

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(3,368

)

 

 

(3,368

)

Share-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

186

 

 

 

 

 

 

186

 

Issuance of Class A Common Stock

   under ATM offering

 

 

 

 

2,638,306

 

 

 

26

 

 

 

 

 

 

 

 

 

7,254

 

 

 

 

 

 

7,280

 

Issuance of Class A Common Stock

   to a related party under the

   Letter Agreements

 

 

 

 

625,000

 

 

 

6

 

 

 

 

 

 

 

 

 

994

 

 

 

 

 

 

1,000

 

Change in redemption value of

   noncontrolling interest

 

12,805

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(12,805

)

 

 

(12,805

)

Balances at June 30, 2020

$

63,378

 

 

 

47,943,495

 

 

$

479

 

 

 

23,094,221

 

 

$

232

 

 

$

198,634

 

 

$

(268,873

)

 

$

(69,528

)

 

For the three months ended June 30, 2019

 

 

 

 

 

 

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 March 31, 2019

$

45,106

 

 

 

27,255,963

 

 

$

273

 

 

 

23,094,221

 

 

$

232

 

 

$

162,249

 

 

$

(220,489

)

 

$

(57,735

)

Net loss

 

(2,232

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2,882

)

 

 

(2,882

)

Share-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

401

 

 

 

 

 

 

401

 

Issuance of Class A Common Stock

   to a related party under the

   Letter Agreements

 

 

 

 

2,570,819

 

 

 

25

 

 

 

 

 

 

 

 

 

4,475

 

 

 

 

 

 

4,500

 

Change in redemption value of

   noncontrolling interest

 

(5,814

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

5,814

 

 

 

5,814

 

Balances at June 30, 2019

$

37,060

 

 

 

29,826,782

 

 

$

298

 

 

 

23,094,221

 

 

$

232

 

 

$

167,125

 

 

$

(217,557

)

 

$

(49,902

)

 

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

6


 

vTv Therapeutics Inc.

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

(in thousands, except number of shares)

 

For the six months ended June 30, 2020

 

 

 

 

 

 

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, 2019

$

40,183

 

 

 

40,918,522

 

 

$

409

 

 

 

23,094,221

 

 

$

232

 

 

$

183,858

 

 

$

(233,522

)

 

$

(49,023

)

Net loss

 

(4,064

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(8,092

)

 

 

(8,092

)

Share-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

566

 

 

 

 

 

 

566

 

Issuance of Class A Common Stock

   under ATM offering

 

 

 

 

2,638,306

 

 

 

26

 

 

 

 

 

 

 

 

 

7,254

 

 

 

 

 

 

7,280

 

Issuance of Class A Common Stock

   to a related party under the Letter

   Agreements

 

 

 

 

4,375,000

 

 

 

44

 

 

 

 

 

 

 

 

 

6,956

 

 

 

 

 

 

7,000

 

Vesting of restricted stock units

 

 

 

 

11,667

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Change in redemption value of

   noncontrolling interest

 

27,259

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(27,259

)

 

 

(27,259

)

Balances at June 30, 2020

$

63,378

 

 

 

47,943,495

 

 

$

479

 

 

 

23,094,221

 

 

$

232

 

 

$

198,634

 

 

$

(268,873

)

 

$

(69,528

)

 

 

 

For the six months ended June 30, 2019

 

 

 

 

 

 

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, 2018

$

62,482

 

 

 

20,347,065

 

 

$

203

 

 

 

23,094,221

 

 

$

232

 

 

$

150,595

 

 

$

(233,883

)

 

$

(82,853

)

Net loss

 

(4,059

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(5,037

)

 

 

(5,037

)

Share-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

682

 

 

 

 

 

 

682

 

Issuance of Class A Common Stock

   under registered direct offering

 

 

 

 

3,636,364

 

 

 

37

 

 

 

 

 

 

 

 

 

5,406

 

 

 

 

 

 

5,443

 

Issuance of Class A Common Stock

   to a related party under the

   Letter Agreements

 

 

 

 

5,831,687

 

 

 

58

 

 

 

 

 

 

 

 

 

10,442

 

 

 

 

 

 

10,500

 

Vesting of restricted stock units

 

 

 

 

11,666

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Change in redemption value of

   noncontrolling interest

 

(21,363

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

21,363

 

 

 

21,363

 

Balances at June 30, 2019

$

37,060

 

 

 

29,826,782

 

 

$

298

 

 

 

23,094,221

 

 

$

232

 

 

$

167,125

 

 

$

(217,557

)

 

$

(49,902

)

 

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

 

 

7


 

vTv Therapeutics Inc.

Condensed Consolidated Statements of Cash Flows - Unaudited

(in thousands)

 

 

 

Six Months Ended June 30,

 

 

 

2020

 

 

2019

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net loss before noncontrolling interest

 

$

(12,156

)

 

$

(9,096

)

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

   activities:

 

 

 

 

 

 

 

 

Depreciation expense

 

 

49

 

 

 

16

 

Share-based compensation expense

 

 

566

 

 

 

682

 

Change in fair value of warrants, related party

 

 

928

 

 

 

(1,196

)

Amortization of debt discount

 

 

182

 

 

 

335

 

Changes in assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

5

 

 

 

(1,822

)

Prepaid expenses and other assets

 

 

670

 

 

 

1,278

 

Long-term deposits

 

 

 

 

 

(39

)

Accounts payable and accrued expenses

 

 

(384

)

 

 

635

 

Contract liabilities

 

 

(8

)

 

 

(1,740

)

Other liabilities

 

 

(206

)

 

 

 

Net cash used in operating activities

 

 

(10,354

)

 

 

(10,947

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Proceeds from issuance of Class A Common Stock to a related party under the Letter

   Agreements

 

 

7,000

 

 

 

10,500

 

Proceeds from issuance of Class A Common Stock, net of offering costs

 

 

7,280

 

 

 

5,443

 

Repayment of notes payable

 

 

(1,811

)

 

 

(5,217

)

Net cash provided by financing activities

 

 

12,469

 

 

 

10,726

 

Net increase (decrease) in cash, cash equivalents and restricted cash and cash equivalents

 

 

2,115

 

 

 

(221

)

Total cash, cash equivalents and restricted cash and cash equivalents, beginning of period

 

 

4,277

 

 

 

4,183

 

Total cash, cash equivalents and restricted cash and cash equivalents, end of period

 

$

6,392

 

 

$

3,962

 

 

 

 

 

 

 

 

 

 

Non-cash activities:

 

 

 

 

 

 

 

 

Change in redemption value of noncontrolling interest

 

$

27,259

 

 

$

(21,363

)

 

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

 

 

8


 

vTv Therapeutics Inc.

Notes to Condensed Consolidated Financial Statements – Unaudited

(dollar amounts are in thousands, unless otherwise noted)

 

 

Note 1:

Description of Business, Basis of Presentation and Going Concern

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 is a clinical-stage pharmaceutical company focused on treating metabolic diseases to minimize their long-term complications through end-organ protection.

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 pharmaceutical company focused on treating metabolic diseases to minimize their long-term complications through end-organ protection.

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 June 30, 2020, various holders own non-voting interests in vTv LLC, representing a 32.5% economic interest in vTv LLC, effectively restricting vTv Therapeutics Inc.’s interest to 67.5% 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 10). 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 registered direct offering in March 2019, 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, and its entrance into the letter agreements, dated as of December 5, 2017, July 30, 2018, December 11, 2018, March 18, 2019, September 26, 2019 and December 23, 2019 with MacAndrews and Forbes Group LLC (the “Letter Agreements”). 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.

Going Concern and Liquidity

To date, the Company has not generated any product revenue and has not achieved profitable operations.  The continuing development of our drug candidates will require additional financing.  From its inception through June 30, 2020, the Company has funded its operations primarily through a combination of private placements of common and preferred equity, research collaboration agreements, upfront and milestone payments for license agreements, debt and equity financings and the completion of its IPO in August 2015.  As of June 30, 2020, the Company had an accumulated deficit of $268.9 million and has generated net losses in each year of its existence.  

As of June 30, 2020, the Company’s liquidity sources included cash and cash equivalents of $6.4 million and $3.0 million of remaining funds available under the Letter Agreements.  Further, we have remaining availability of $5.4 million under our Controlled Equity OfferingSM  Sales Agreement (the “Sales Agreement”) with Cantor Fitzgerald & Co. (“Cantor Fitzgerald”) pursuant to which the Company may offer and sell, from time to time shares of the Company’s Class A Common Stock (the “ATM Offering”).  See Note 9 for further details.  On July 29, 2020, the Company amended the Loan Agreement (the “Third Amendment”) to further modify the payment terms and to remove the minimum cash requirements under this agreement.  See Note 5 for further details.  Based on the Company’s current operating plan, management believes that its current cash and cash equivalents, the remaining funds available under the Letter Agreements and the ATM Offering, if fully utilized will allow the Company to meet its liquidity requirements through September 2020, which is less than twelve months from the issuance of these Condensed Consolidated Financial Statements.  These conditions raise substantial doubt about the Company’s ability to continue as a going concern.  The Company is evaluating

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several financing strategies to provide continued funding which may include additional direct equity investments or future public offerings of our common stock.  The timing and availability of such financing is not yet known.

The Company’s financial statements have been prepared assuming the Company will continue as a going concern, which contemplates, among other things, the realization of assets and satisfaction of liabilities in the normal course of business.  The Condensed Consolidated Financial Statements do not include adjustments to reflect the possible future effects on the recoverability and classification of recorded assets or the amounts of liabilities that might be necessary should the Company be unable to continue as a going concern.

The full extent to which the COVID-19 outbreak / pandemic will directly or indirectly impact our business, results of operations and financial condition, including licensing revenues, expenses, reserves and allowances, manufacturing, clinical trials, research and development costs and employee-related amounts will depend on future developments that are highly uncertain, including as a result of new information that may emerge concerning COVID-19 and the actions taken to contain or treat COVID-19, as well as the economic impact on local, regional, national and international suppliers and markets.

 

 

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 June 30, 2020, Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2020 and 2019, Condensed Consolidated Statement of Changes in Redeemable Noncontrolling Interest and Stockholders’ Deficit for the three and six months ended June 30, 2020 and 2019 and Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2020 and 2019 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, 2019 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 June 30, 2020, the results of operations for the three and six months ended June 30, 2020 and 2019 and cash flows for the six months ended June 30, 2020 and 2019. The December 31, 2019 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.

The financial data and other information disclosed in these notes to the financial statements related to the three and six months ended June 30, 2020 and 2019 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 warrants to purchase shares of its Class A Common Stock, 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.

Three customers represented 100% of the revenue earned during the three and six months ended June 30, 2019.  Revenue for the three and six months ended June 30, 2020 was insignificant.

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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.

Restricted Cash and Cash Equivalents

Restricted cash and cash equivalents as of December 31, 2019 was $2.5 million.  This amount relates to the minimum balance that the Company was required to maintain in a deposit account that was pledged to secure the Loan Agreement and was subject to an account control agreement pursuant to the Loan Agreement. There was no restricted cash and cash equivalents as of June 30, 2020, as the Loan Agreement was amended to remove the minimum cash balance requirements (See Note 5 for further details).

The following table provides a reconciliation of cash, cash equivalents and restricted cash and cash equivalents reported within the Condensed Consolidated Balance Sheets as of June 30, 2020 and December 31, 2019 that sum to the total of the same such amounts shown in the Condensed Consolidated Statements of Cash Flows (in thousands):

 

 

June 30, 2020

 

 

December 31, 2019

 

Cash and cash equivalents

$

6,392

 

 

$

1,777

 

Restricted cash and cash equivalents

 

 

 

 

 

Restricted cash and cash equivalents, long-term

 

 

 

 

2,500

 

Total cash, cash equivalents and restricted cash and cash

   equivalents shown in the consolidated statement of

   cash flows

$

6,392

 

 

$

4,277

 

 

Investments

In connection with the license agreement with Reneo Pharmaceuticals, Inc. (“Reneo”) (the “Reneo License Agreement”), the Company received common stock representing a minority equity interest in Reneo that is classified as a long-term investment in the Company’s Condensed Consolidated Balance Sheets as of June 30, 2020 and December 31, 2019.  The Company owns less than 20% of the voting equity of Reneo and does not have the ability to exercise significant influence over Reneo.  Since it does not have a readily determinable market value, the Company has elected to measure its investment in Reneo at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or similar investment.  

No adjustments were made to the value of the Company’s investment in Reneo for the three and six months ended June 30, 2020 and 2019 either due to impairment or based on observable price changes.  

Revenue Recognition

The Company uses the revenue recognition guidance established by ASC Topic 606, “Revenue From Contracts With Customers” (“ASC Topic 606”).

The majority of the Company’s revenue results from its license and collaboration agreements associated with the development of investigational drug products.  The Company accounts for a contract when it has approval and commitment from both parties, the rights of the parties are identified, payment terms are identified, the contract has commercial substance and collectability of consideration is probable.  For each contract meeting these criteria, the Company identifies the performance obligations included within the contract.  A performance obligation is a promise in a contract to transfer a distinct good or service to the customer.  The Company then recognizes revenue under each contract as the related performance obligations are satisfied.  

The transaction price under the contract is determined based on the value of the consideration expected to be received in exchange for the transferred assets or services.  Development, regulatory and sales milestones included in the Company’s collaboration agreements are considered to be variable consideration.  The amount of variable consideration expected to be received is included in the transaction price when it becomes probable that the milestone will be met.  For contracts with multiple performance obligations, the contract’s transaction price is allocated to each performance obligation using the Company’s best estimate of the standalone selling price of each distinct good or service in the contract. The primary method used to estimate standalone selling price is the expected cost plus margin approach. Revenue is recognized over the related period over which the Company expects the services to be provided using a proportional performance model or a straight-line method of recognition if there is no discernable pattern over which the services will be provided.

Research and Development

Major components of research and development costs include cash and share-based compensation, costs of preclinical studies, clinical trials and related clinical manufacturing, costs of drug development, costs of materials and supplies, regulatory and

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compliance costs, fees paid to consultants and other entities that conduct certain research and development activities on the Company’s behalf, facilities costs, and overhead costs. 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.

Research and development costs that are reimbursed under a cost-sharing arrangement are reflected as a reduction of research and development expense.

Recently Issued Accounting Pronouncements

There have been no recently accounting pronouncements which are expected to have a material impact on the Company’s financial statements.

 

 

Note 3:

Collaboration Agreements

Reneo License Agreement

The Company is party to the Reneo License Agreement, under which Reneo obtained an exclusive, worldwide, sublicensable license to develop and commercialize the Company’s peroxisome proliferation activated receptor delta (PPAR-δ) agonist program, including the compound HPP593, for therapeutic, prophylactic or diagnostic application in humans.

The Company has fully allocated the transaction price to the license and the technology transfer services, which represents a single combined performance obligation because they were not capable of being distinct on their own.  The revenue related to this performance obligation was recognized on a straight-line basis over the technology transfer service period.

The revenue related to this performance obligation has been fully recognized as of June 30, 2020. No revenue related to this performance obligation was recognized for the three and six months ended June 30, 2020.  For the three and six months ended June 30, 2019, the Company recognized revenue related to this performance obligation of $0.8 million and $1.7 million, respectively.

Huadong License Agreement

The Company is party to a License Agreement with Hangzhou Zhongmei Huadong Pharmaceutical Co., Ltd. (“Huadong”) (the “Huadong License Agreement”), under which Huadong obtained an exclusive and sublicensable license to develop and commercialize the Company’s glucagon-like peptide-1 receptor agonist (“GLP-1r”) program, including the compound TTP273, for therapeutic uses in humans or animals, in China and certain other pacific rim countries, including Australia and South Korea (collectively, the “Huadong License Territory”).  Additionally, under the Huadong License Agreement, the Company obtained a non-exclusive, sublicensable, royalty-free license to develop and commercialize certain Huadong patent rights and know-how related to the Company’s GLP-1r program for therapeutic uses in humans or animals outside of the Huadong License Territory.  

Under the Huadong License Agreement, the Company is also responsible for conducting a Phase 2 multi-region clinical trial (the “Phase 2 MRCT”), should Huadong require it to do so.  If conducted, the Phase 2 MRCT will include sites in both the United States and Huadong License Territory for the purpose of assessing the safety and efficacy of TTP273 in patients with type 2 diabetes.  The Phase 2 MRCT will be designed to satisfy the requirements of the China Food and Drug Administration necessary in order for Huadong to begin a Phase 3 clinical trial in China.  The Company will also be responsible for contributing up to $3.0 million in connection with the Phase 2 MRCT.

The significant performance obligations under this license agreement were determined to be (i) the exclusive license to develop and commercialize the Company’s GLP-1r program, (ii) technology transfer services related to the chemistry and manufacturing know-how for a defined period after the effective date, (iii) the obligation to sponsor and conduct the Phase 2 MRCT, (iv) the Company’s obligation to participate on a joint development committee (the “JDC”), and (v) other obligations considered to be de minimis in nature.  

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The Company has determined that the license and technology transfer services related to the chemistry and manufacturing know-how represent a combined performance obligation because they were not capable of being distinct on their own.   The Company also determined that there was no discernable pattern in which the technology transfer services would be provided during the transfer service period.  As such, the Company recognized the revenue related to this combined performance obligation using the straight-line method over the transfer service period.  The revenue related to this combined performance obligation has been fully recognized as of June 30, 2020.  No revenue related to this combined performance obligation was recognized during the three and six months ended June 30, 2020 and 2019.

The portion of the transaction price allocated to the obligation to sponsor and conduct a portion of the Phase 2 MRCT was $1.0 million and remained deferred as of June 30, 2020.  Revenue for this performance obligation will be recognized using the proportional performance model over the period during which the Company conducts the Phase 2 MRCT trial. Since the Company has not yet begun the Phase 2 MRCT trial, no revenue for this performance obligation has yet been recognized.  The expectation of when, or if, the Phase 2 MRCT trial will begin remains indeterminate.

The portion of the transaction price allocated to the obligation to participate in the joint development committee (the “JDC”) to oversee the development of products and the Phase 2 MRCT in accordance with the development plan remained deferred as of June 30, 2020 and revenue will be recognized using the proportional performance model over the period of the Company’s participation on the JDC. The unrecognized amount of the transaction price allocated to this performance obligation as of June 30, 2020 was $0.1 million.  An immaterial amount of revenue for this performance obligation has been recognized during the six months ended June 30, 2020.

There have been no adjustments to the transaction price for the performance obligations under the Huadong License Agreement during the three and six months ended June 30, 2020.

Newsoara License Agreement

The Company is party to a license agreement with Newsoara Biopharma Co., Ltd., (“Newsoara”) (the “Newsoara License Agreement”) under which Newsoara obtained an exclusive and sublicensable license to develop and commercialize the Company’s phosphodiesterase type 4 inhibitors (“PDE4”) program, including the compound HPP737, in China, Hong Kong, Macau, Taiwan and other pacific rim countries (collectively, the “Newsoara License Territory”).  Additionally, under the Newsoara License Agreement, the Company obtained a non-exclusive, sublicensable, royalty-free license to develop and commercialize certain Newsoara patent rights and know-how related to the Company’s PDE4 program for therapeutic uses in humans outside of the Newsoara License Territory.

  The Company has fully allocated the transaction price to the license and the technology transfer services which represents a single performance obligation because they were not capable of being distinct on their own.  The Company recognized revenue for this performance obligation using the straight-line method over the transfer service period.  The revenue for this performance obligation has been fully recognized as of June 30, 2020.  No revenue related to this performance obligation was recognized during the three and six months ended June 30, 2020. During the six months ended June 30, 2019, the transaction price for this performance obligation was increased by $1.0 million due to the satisfaction of a development milestone under the license agreement.  This amount was fully recognized as revenue during the six months ended June 30, 2019, as the related performance obligation was fully satisfied.

JDRF Agreement

In August 2017, the Company entered into a research and collaboration agreement with JDRF International (the “JDRF Agreement”) to support the funding of the Simplici-T1 Study, a Phase 2 study to explore the effects of TTP399 in patients with type 1 diabetes.  According to the terms of the JDRF Agreement, JDRF will provide research funding of up to $3.0 million based on the achievement of research and development milestones, with the total funding provided by JDRF not to exceed approximately one-half of the total cost of the project.  Additionally, the Company has the obligation to make certain milestone payments to JDRF upon the commercialization, licensing, sale or transfer of TTP399 as a treatment for type 1 diabetes.

Payments that the Company receives from JDRF under this agreement will be recorded as restricted cash and current liabilities and recognized as an offset to research and development expense, based on the progress of the project, and only to the extent that the restricted cash is utilized to fund such development activities.  As of June 30, 2020, the Company had received funding under this agreement of $3.0 million.  Research and development costs have been offset by a total of $3.0 million over the course of this agreement.  

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Contract Liabilities

Contract liabilities related to the Company’s collaboration agreements consisted of the following (in thousands):

 

 

June 30, 2020

 

 

December 31, 2019

 

Current portion of contract liabilities

$

31

 

 

$

31

 

Contract liabilities, net of current portion

 

1,025

 

 

 

1,033

 

Total contract liabilities

$

1,056

 

 

$

1,064

 

The change in the Company’s contract liabilities for the six months ended June 30, 2020 of an immaterial amount was due to the recognition of amounts included in the contract liability at the beginning of the period.

 

 

Note 4:

Share-Based Compensation

The Company has issued non-qualified stock option awards to certain employees of the Company. These option awards vest ratably over a three-year period and the option awards expire after a term of ten years from the date of grant. As of June 30, 2020, the Company had total unrecognized stock-based compensation expense for its outstanding stock option awards of approximately $1.2 million, which is expected to be recognized over a weighted average period of 1.8 years.  The weighted average grant date fair value of option grants during the six months ended June 30, 2020 and 2019  was $2.26 and $1.94 per option, respectively. The aggregate intrinsic value of the in-the-money awards outstanding at June 30, 2020 was $0.1 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 Six Months Ended June 30,

 

 

2020

 

 

2019

 

Expected volatility

120.37%

 

 

115.29% - 117.94%

 

Expected life of option, in years

 

5.7

 

 

5.8 - 6.0

 

Risk-free interest rate

0.39%

 

 

1.88% - 2.64%

 

Expected dividend yield

0.00%

 

 

0.00%

 

The following table summarizes the activity related to the stock option awards for the six months ended June 30, 2020:

 

 

Number of Shares

 

 

Weighted-

Average Exercise Price

 

Awards outstanding at December 31, 2019

 

2,531,143

 

 

$

6.19

 

Granted

 

86,250

 

 

 

2.65

 

Forfeited

 

 

 

 

 

Awards outstanding at June 30, 2020

 

2,617,393

 

 

$

6.08

 

Options exercisable at June 30, 2020

 

1,834,944

 

 

$

7.66

 

Weighted average remaining contractual term

6.4 Years

 

 

 

 

 

Options vested and expected to vest at June 30, 2020

 

2,556,696

 

 

$

6.17

 

Weighted average remaining contractual term

7.1 Years

 

 

 

 

 

The following table summarizes the activity related to the RSU awards for the six months ended June 30, 2020:

 

 

Number of Shares

 

 

Weighted-

Average Grant Date Fair Value

 

Awards outstanding at December 31, 2019

 

11,667

 

 

$

5.81

 

Vested

 

(11,667

)

 

 

5.81

 

Awards outstanding at June 30, 2020

 

 

 

$

 

RSUs expected to vest at June 30, 2020

 

 

 

$

 

 

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):

 

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Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Research and development

$

68

 

 

$

150

 

 

$

201

 

 

$

215

 

General and administrative

 

118

 

 

 

251

 

 

 

365

 

 

 

467

 

Total share-based compensation expense

$

186

 

 

$

401

 

 

$

566

 

 

$

682

 

 

 

Note 5:

Notes Payable

Notes payable consist of the following (in thousands):

 

 

June 30, 2020

 

 

December 31, 2019

 

Notes payable under the Loan Agreement

$

3,229

 

 

$

4,896

 

Short-term financing