With negative net assets, vTv Therapeutics' (VTVT) market capitalization equals $37 million. VTVT has one product candidate at Phase 3 and several drug candidates at Phase 2 of development. The rights over those treatments are not worth zero. However, $37 million does seem too high. Keep in mind that equity sale transactions are quite likely right now, which could lead to share price depreciation in the near future. With that, this is a controlled company. The protection of class A shareholders may not be that high.
Business And Product Candidates - Data Expected At The End Of 2018
Founded in 2015 and headquartered in High Point, North Carolina, United States, vTv Therapeutics is a clinical-stage biopharmaceutical company developing different orally administered drugs to treat different diseases including Alzheimer's and diabetes.
vTv Therapeutics should interest investors since its research and development seems at an advanced stage. The company's lead product candidate, Azeliragon, for the treatment of Alzheimer's is at Phase 3 of development under the FDA. In addition, the company has TTP399, which completed a Phase 2b clinical trial in type 2 diabetes in August 2016. TTP273, which is another treatment for type 2 diabetes, is also at Phase 2 of development. Finally, vTv Therapeutics owns two additional programs at the preclinical stage and one program at Phase 1b/2 to treat type 1 diabetics.
The pipeline given by the company on its website is shown in the image below. Please note that data is expected at the end of 2018, and the company has meetings with the FDA in Q4 2018. If new data is released and it is successful, the share price could spike up.
Source: Company's Website
Azeliragon And Phase 2b Data
Azeliragon is an oral drug with a new mechanism of action of inhibiting advanced glycation end products ("RAGE"), a receptor playing a very important role in Alzheimer's disease. The company seems to have demonstrated that Azeliragon is a potent and selective inhibitor of RAGE, which helps reduce the progression of cognitive decline of patients.
With tests made on 399 patients with mild-to-moderate Alzheimer's disease, the results were promising. In the study, in which patients received either placebo or Azeliragon, the cognitive decline of patients was more significant in the patients receiving placebo. The images below provide further details on the results obtained:
The market opportunity seems quite large. Zion Market Research notes that the market size is expected to be equal to $5.66 billion by 2024. In addition, it is expected that the global opportunity could grow at 8% between 2018 and 2024. The company did not provide information about its target market size.
Diabetes - Completed Phase 2 LOGRA Study
With 174 patients with Type 2 diabetes tested, the results of TTP273 were also quite interesting. The tests in which patients received placebo or TTP273 at doses of 150 mg once or twice daily showed decreases in HbA1c, average blood glucose levels, in patients treated with TTP273. Additionally, it was shown that patients treated with TTP273 reduced their weight, on the average, from 0.9 kg to 0.6 kg. Patients tested with placebo increased their weight and showed increase in their average blood glucose levels. The images below provide further details on this matter:
Research and Markets notes that the global diabetes market could reach $85 billion by 2022 and could grow at 5.2% from 2017 to 2022. With these numbers in mind, if the FDA approves the product candidates of vTv, the share price should spike up quite a bit. The target market could be equal to $5.2 billion. Read the following lines for further details:
We believe the continued and significant unmet medical need for diabetes treatments is demonstrated by the commercial success of DPP-4 inhibitors, a new class of OADs which were first approved in the United States in 2006 and achieved annual sales of $5.2 billion in 2013." Source: 10-K
Cash And Interest Expenses
On December 31, 2017, the cash in hand was equal to $11.75 million and the amount of notes payable was equal to $15.31 million. With this information in mind, the company seems to have a liquidity problem. The sale of new equity seems necessary on this name. The image below provides the balance sheet reported in the last annual report:
With that, the interest expenses may scare some investors. The convertible notes include a floating rate equal to more than 10.5%. The image below provides further details on this matter:
Income Statement, Cash Burn Rate, And Contractual Obligations
vTv Therapeutics reports revenues, which is a bit unusual for a clinical-stage biopharmaceutical company. Investors should know that the company is receiving collaboration revenues and revenues for certain license agreements signed by vTv. The lines below provide further details on this matter:
With that said, the company reports heavy losses, which investors may not appreciate. The operating losses in 2015, 2016, and 2017 were equal to -$38.14 million, -$55.02 million, and -$50.68 million respectively. In 2017, it expensed $39.64 million in R&D and reported $11.33 million in general and administrative expenses. Take a look at it in the image below:
Additionally, with plenty of cash to spend, vTv Therapeutics seems to be burning cash at a high pace. The CFO is negative and was equal to -$36.94 million, -$48.20 million, and -$44.56 million in 2015, 2016, and 2017 respectively. The company is conducting research and development, thus reporting negative CFO makes sense. With that, the issue is that the current amount of cash is insufficient to finance future expenses.
The list of contractual obligations shows that the company will need to pay $18.65 million in one to three years. Investors will need to remember well this date. The company may have to raise capital around this date, which could lead to share price depreciations. The contractual obligations are reported below:
Shareholders And Equity Structure
The equity structure is another feature that the market should not appetite. The company has two types of common stock, class A and class B, which most investors will not appreciate:
In addition, there is one shareholder who owns 79.8% of the total amount of shares outstanding. It is not ideal since the Board of Directors may not be independent. It could take decisions to benefit the largest shareholders damaging the interest of small shareholders. It is also quite worrying that vTv was not able to seduce large institutions or venture capital firms. The image below provides information about different shareholders of vTv Therapeutics and the ownership as shown in the last annual report:
Recent Stock Volatility - Is It Really Justified?
On October 2, 2018, the stock price jumped up by 122% with large volume after the largest shareholder acquired approximately 1.879 million shares at $1.33. This investor owns right now 36 million shares of the company. Read the following lines for further details:
Source: Seeking Alpha
Does the stock price jump make sense? The shareholder acquired shares at $1.33. It makes sense that there is certain stock demand at $1.33. At the end of the day, the shareholders should know the company very well and it seems reasonable following their actions. With that, as of October 10, 2018, the stock price touched the $3.48 level, which is about 2.6x the price at which the big shareholder is buying shares. This valuation does not seem at all justified.
Controlled Company: This Is A Risk
As the annual report reads, this is a controlled company, which means that the protection of class A shareholders may not be that high. The controlling shareholder could form a non-independent Board of Directors to benefit its interest. It is quite worrying. Read the lines below for further details on this matter:
MacAndrews controls more than 50% of our combined voting power. As a result, we are considered a "controlled company" for the purposes of NASDAQ rules and corporate governance standards, and therefore are permitted to elect not to comply with certain NASDAQ corporate governance requirements, including those that would otherwise require our Board of Directors to have a majority of independent directors." Source: 10-K
Valuation And Conclusion
With negative net assets, seeing this stock trading at $0 does not make any sense since the company could deliver positive Phase 3 clinical results. The rights over those treatments are not worth zero. With that, investors need to understand that the risk is high. Negative results may push the stock price to prices below $1 since the amount of net assets is negative. Additionally, the likelihood of suffering stock dilution is very high. Keep in mind that the company may soon need cash to pay workers. Equity sale seems to be the most logical option for the company, which should also lead to share price declines.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
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