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 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 June 30, 2022, various holders own non-voting interests in vTv LLC, representing a 23.0% economic interest in vTv LLC, effectively restricting vTv Therapeutics Inc.’s interest to 77.0% 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 9). 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, its registered direct offering in March 2019, 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. entered into the letter agreements with MacAndrews and Forbes Group LLC (“M&F Group”), a related party and an affiliate of MacAndrews & Forbes Incorporated (together with its affiliates “MacAndrews”). in December 2017, July 2018, December 2018, March 2019, September 2019, and December 2019 (the “Letter Agreements”). In addition, vTv Therapeutics Inc. also entered into the Controlled Equity OfferingSM Sales Agreement (the “Sales Agreement”) with Cantor Fitzgerald & Co. (“Cantor Fitzgerald”) (the “ATM Offering”), the purchase agreement with Lincoln Park Capital Fund, LLC (“Lincoln Park”) (the “LPC Purchase Agreement”), and the common stock purchase agreement with G42 Investments AI Holding RSC Ltd (“G42 Investments”) (the “G42 Purchase Agreement”). vTv Therapeutics Inc. will not be required to provide financial or other support for vTv LLC. 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. 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, 2022, 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, 2022, the Company had an accumulated deficit of $253.3 million and has generated net losses in each year of its existence.
As of June 30, 2022, the Company’s liquidity sources included cash and cash equivalents of $17.9 million. To meet our future funding requirements into the third quarter of 2023, including funding the on-going and future clinical trials of TTP399, we are evaluating several financing strategies, including direct equity investments and the potential licensing and monetization of other Company programs such as HPP737. The Company also has a promissory note of $12.5 million under
the G42 Purchase Agreement payable to the Company on or before May 31, 2023 (see Note 9) and on July 25, 2022, announced a $10.0 million investment by CinPax, LLC (see Note 14).
The Company may also use its remaining availability of $37.3 million under our Sales Agreement with 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”) and the ability to sell an additional 9,437,376 shares of Class A common stock under the LPC Purchase Agreement based on the remaining number of registered shares. However, the ability to use these sources of capital is dependent on a number of factors, including the prevailing market price of and the volume of trading in the Company’s Class A common stock. See Note 9 for further details.
These conditions raise substantial doubt about the Company’s ability to continue as a going concern. If we are unable to raise additional capital as and when needed, or upon acceptable terms, such failure would have a significant negative impact on our financial condition.
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.
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, 2022, Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2022, and 2021, Condensed Consolidated Statement of Changes in Redeemable Noncontrolling Interest and Stockholders’ Deficit for the three and six months ended June 30, 2022, and 2021 and Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2022, and 2021 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, 2021, 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, 2022, the results of operations for the three and six months ended June 30, 2022, and 2021 and cash flows for the six months ended June 30, 2022, and 2021. The December 31, 2021 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, 2022, and 2021 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, the fair value of the promissory note receivable, 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 one financial institution. The balances of these cash accounts frequently exceed insured limits.
One customer represented 100% of the revenue earned during the three and six months ended June 30, 2022, and 2021, 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.
Investments
Investments in entities in which the Company has no control or significant influence, is not the primary beneficiary, and have a readily determinable fair value are classified as equity investments with readily determinable fair value. The investments are measured at fair value based on a quoted market price per unit in active markets multiplied by the number of units held without consideration of transaction costs (Level 1). Gains and losses are recorded in other income (expense), net on the Consolidated Statements of Operations.
Equity investments without readily determinable fair value include ownership rights that do not provide the Company with control or significant influence and these investments do not have readily determinable fair values. The Company has elected to measure its equity investments without readily determinable fair values at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or similar investment.
Revenue Recognition
The Company uses the revenue recognition guidance established by ASC Topic 606, Revenue From Contracts With Customers (“ASC 606”). When an agreement falls under the scope of other standards, such as ASC Topic 808, Collaborative Arrangements (“ASC 808”), the Company will apply the recognition, measurement, presentation, and disclosure guidance in ASC 606 to the performance obligations in the agreements if those performance obligations are with a customer. Revenue recognized by analogizing to ASC 606, is recorded as collaboration revenue on the statements of operations.
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.
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 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
Fair Value Measurements: In June 2022, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2022-03 “Fair Value Measurements (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions.” These amendments clarify that a contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity security and, therefore, is not considered in measuring fair value. This guidance is effective for public business entities for fiscal years, including interim periods within those fiscal years, beginning after December 15, 2023. Early adoption is permitted. The Company has assessed ASU 2022-03 and early adopted the guidance during the second quarter of 2022. The adoption did not have a material impact on the Company's Condensed Consolidated Financial Statements.
Note 3: Collaboration Agreements
G42 Purchase Agreement and Cogna Collaborative and License Agreement
The Company and G42 Investments AI Holding RSC Ltd, a private limited company (“G42 Investments”), entered into a Common Stock Purchase Agreement (the “G42 Purchase Agreement”), pursuant to which the Company sold to G42 Investments 10,386,274 shares of the Company’s Class A common stock, par value $0.01 per share (the “G42 Common Stock) at a price per share of approximately $2.41, for an aggregate purchase price of $25.0 million, which was paid (i) $12.5 million in cash at the closing and (ii) $12.5 million in the form of a promissory note of G42 Investments to be paid at the one-year anniversary of the execution of the G42 Purchase Agreement. As part of the G42 Purchase Agreement, G42 Investments put forward a director as appointee and the Company’s board of directors approved appointing the new director to the Company’s board.
G42 Investments has agreed to certain transfer restrictions (including restrictions on short sales or similar transactions) and restrictions on further acquisitions of shares, in each case subject to specified exceptions. Following the expiration of a lock up period, from the period May 31, 2022 until December 31, 2024 (or if earlier, the date of receipt of U.S. Food and Drug Administration (“FDA”) approval in the U.S. for TTP399 (the “FDA Approval”) of TTP399), the Company has granted to G42 Investments certain shelf and piggyback registration rights with respect to those shares of Class A common stock issued to G42 Investments pursuant to the G42 Purchase Agreement, including the ability to conduct an underwritten offering to resell such shares under certain circumstances. The registration rights include customary cooperation, cut-back, expense reimbursement, and indemnification provisions.
Contemporaneously with the G42 Purchase Agreement, effective on May 31, 2022, the Company entered into a collaboration and license agreement (the “Cogna Agreement”) with Cogna Technology Solutions LLC, an affiliate of G42 Investments (“Cogna”) (“Collaboration Partner”), which requires Cogna to work with the Company in performing Phase 3 clinical trials for the Company’s TTP399 compound (the “Licensed Product”) as well as jointly creating a global development plan to develop, market, and commercialize TTP399 in certain countries in the Middle East, Africa, and Central Asia (the “Partner Territory”). Under the terms of the Cogna Agreement, Cogna will obtain rights to the Company’s license of TTP399, for purposes of performing Phase 3 clinical trials in the Partner Territory, but will not have access to the various intellectual property (“IP”) related to the license and TTP399. Specifically, the Company will share various protocols with Cogna related to conducting the clinical trials and will provide the patient dosages and placebo of TTP399 needed to conduct the trials. Separately, the Company will conduct its Phase 3 clinical trials for TTP399 in the U.S. at its own cost that similarly
will not be reimbursed. The results of each party’s Phase 3 clinical trials will be combined by the Company to seek FDA approval in the U.S. for TTP399.
Under the Cogna Agreement, Cogna has the right to develop and commercialize the Licensed Product in the Partner Territory at its own cost once restrictions on the use of the IP have been lifted by the Company. The Cogna Agreement determined which specific countries in the Partner Territory that Cogna may pursue development and commercialization and provides the Company with the ability to determine when Cogna can benefit from this IP through the powers granted to the Company to approve the global development plan. Further, the Company may supply at cost, or Cogna may manufacture, TTP399 for commercial sale under terms to be agreed upon by the parties at a later date.
The G42 Purchase Agreement also provides for, following the receipt of FDA approval of the Licensed Product, at the option of G42 Investments, either (a) the issuance of the Company’s Class A common stock (the “Milestone Shares”) having an aggregate value equal to $30.0 million or (b) the payment by the Company of $30.0 million in cash (the “Milestone Cash Payment”). The issuance of the Milestone Shares or the payment of the Milestone Cash Payment, as applicable, are conditioned upon receipt of the FDA Approval and subject to certain limitations and conditions set forth in the G42 Purchase Agreement. There can be no assurance that the FDA Approval will be granted or as to the timing thereof.
Once commercialization takes place in the Partner Territories, the Company will receive royalties of 8% from Cogna on the sale of the Licensed Product for ten years after the first commercial sale of the Licensed Product.
Common stock is generally recorded at fair value at the date of issuance. In determining the fair value of the Class A common stock issued to G42 Investments, the Company considered the closing price of the common stock on the effective date. The Company did not make an adjustment to the fair value for sale restrictions on the stock in accordance with guidance recently adopted in ASU 2022-03. See the “Recently Issued Accounting Guidance” in this 10-Q for details of the ASU. Accordingly, the Company determined that cash consideration of $5.7 million should be recorded as fair value of the Class A common stock at the effective date, utilizing the Class A common stock closing price of $0.55 at the effective date.
A premium was paid on the Class A common stock by G42 Investments of $18.7 million, net of a note receivable discount of $0.6 million. This premium is determined to be the transaction price for all remaining obligations under the agreements, which will be accounted for under ASC 808 or ASC 606 based on determination of the unit of account.
The Company determined that certain commitments under the agreements are in the scope of ASC 808 as both the Company and Cogna are active participants in the clinical trials of the Licensed Product, and both are exposed to significant risks and rewards based on the success of the clinical trials and subsequent FDA approval. Cogna is determined to be a vendor of the Company during the clinical trial phase, working on the Company’s behalf to complete R&D activities, and not in a customer capacity. The Company accounted for the commitments related to the clinical trials, which includes transfer of trial protocols, supply of clinical trial dosages, and collaboration on the joint development committee (“JDC”) as an ASC 808 unit of account, applying the recognition and measurement principles of ASC 606 by analogy. The Company will recognize collaboration revenue for its development activities under ASC 808 over time based on the estimated period of performance.
By applying the principals in ASC 606 by analogy, the Company identified the performance obligation and considered the timing of satisfaction of the obligation to account for the pattern of revenue recognition. In order to recognize collaboration revenue, generally, the Company would have to complete its performance obligation and Cogna would need to be able to use and benefit from delivery of the assets or services. The performance obligation under the agreements that fall within the 808 unit of account are concentrated in the Phase 3 clinical trials. As of June 30, 2022, the Phase 3 clinical trials had not commenced. Accordingly, no collaboration revenue was recognized for the ASC 808 unit of account during the three and six months ended June 30, 2022.
The Company identified certain commitments that are in the scope of ASC 606 as Cogna’s relationship is that of a customer for these commitments. The significant performance obligations that are in the scope of ASC 606 are (1) the development, commercialization and manufacturing license of the IP once restrictions on the use of the IP have been lifted by the Company and (2) a potential material right to a commercial supply agreement. The material right is predicated upon FDA approval. The Company will recognize revenue from the development, commercial and manufacturing license at a point in time when the Company releases the restrictions on the use of the IP, which is expected to be after the Licensed Product is approved by the FDA. As a result, the Company has not recognized any revenue under the ASC 606 unit of account during the three and six months ended June 30, 2022.
As of June 30, 2022, the Company has recognized the cash and a non-interest bearing promissory note receivable of with a principal balance of $12.5 million. The promissory note receivable was classified and accounted for under ASC 310 and was measured at its fair value of and will be subsequently remeasured at its amortized cost thru its maturity date. The
Company also recorded the $18.7 million as deferred revenue in the Consolidated Balance Sheets, as none of the underlying performance obligations had been satisfied as of and for the three and six months ended June 30, 2022.
Reneo License Agreement
The Company is party to a license agreement with Reneo Pharmaceuticals, Inc. (“Reneo”) (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 and no revenue related to this performance obligation was recognized for the three and six months ended June 30, 2022, and 2021. There have been no adjustments to the transaction price for the performance obligations under the Reneo License Agreement during the three and six months ended June 30, 2022, and 2021.
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.
On January 14, 2021, the Company entered into the First Huadong Amendment which eliminated the Company’s obligation to sponsor a multi-region clinical trial (the “Phase 2 MRCT”), and corresponding obligation to contribute up to $3.0 million in support of such trial. The amendment also reduced the total potential development and regulatory milestone payments by $3.0 million.
Prior to the First Amendment, the Company had allocated a portion of the transaction price to the obligation to sponsor and conduct a portion of the Phase 2 MRCT. Upon the removal of this performance obligation, the Company evaluated the impact of the modification under the provisions of ASC Topic 606 and performed a reallocation of the transaction price among the remaining performance obligations. This resulted in the recognition of approximately $1.0 million of revenue on a cumulative catch-up basis during the six months ended June 30, 2021. The majority of the transaction price originally allocated to the Phase 2 MRCT performance obligation was reallocated to the license and technology transfer services combined performance obligation discussed below, which had already been completed. The reallocation of the purchase price in connection with the First Huadong Amendment was made based on the relative estimated selling prices of the remaining performance obligations.
The significant performance obligations under this license agreement, as amended, 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 Company’s obligation to participate on a joint development committee (the “JDC”), and (iv) other obligations considered to be de minimis in nature.
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 discernible 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. This combined performance obligation was considered complete as of June 30, 2021. The Company recognized $1.0 million of revenue related to this combined performance obligation during the six months ended June 30, 2021. During the six months ended June 30, 2022, the transaction price for this performance obligation was increased by $2.0 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, 2022, as the related performance obligation was fully satisfied.
A portion of the transaction price allocated to the obligation to participate in 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, 2022, 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, 2022, was de minimis. An immaterial amount of revenue for this performance obligation has been recognized during six months ended June 30, 2022, and 2021.
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, 2022. No revenue related to this performance obligation was recognized and there have been no changes to the transaction price during the three and six months ended June 30, 2022, and 2021.
Anteris License Agreement
On December 11, 2020, the Company entered into a license agreement with Anteris Bio, Inc. (“Anteris”) (the “Anteris License Agreement”), under which Anteris obtained a worldwide, exclusive and sublicensable license to develop and commercialize the Company’s Nrf2 activator, HPP971.
Under the terms of the Anteris License Agreement, Anteris paid the Company an initial license fee of $2.0 million. The Company is eligible to receive additional potential development, regulatory, and sales-based milestone payments totaling up to $151.0 million. Anteris is also obligated to pay the Company royalty payments at a double-digit rate based on annual net sales of licensed products. Such royalties will be payable on a licensed product-by-licensed product basis until the latest of expiration of the licensed patents covering a licensed product in a country, expiration of data exclusivity rights for a licensed product in a country, or a specified number of years after the first commercial sale of a licensed product in a country. As additional consideration, the Company received preferred stock representing a minority ownership interest in Anteris.
Pursuant to the terms of the Anteris License Agreement, the Company was required to provide technology transfer services for a 30-day period after the effective date. In accordance with ASC Topic 606, the Company identified all the performance obligations at the inception of the Anteris License Agreement. The significant obligations were determined to be the license and the technology transfer services. The Company has determined that the license and technology transfer services represent a single performance obligation because they were not capable of being distinct on their own. The transaction price has been fully allocated to this combined performance obligation and consisted of the $2.0 million initial license payment, as well as the fair value of the equity interest received in Anteris of $4.2 million. The revenue related to this performance obligation was fully recognized during the year ended December 31, 2020, as the technology transfer services were considered complete as of that date. No revenue related to this performance obligation was recognized and there have been no changes to the transaction price during the three and six months ended June 30, 2022, and 2021.
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. The JDRF Agreement was amended in June 2021 to provide additional funding for the Company’s mechanistic study exploring the effects of TTP399 on ketone body formation during a period of insulin withdrawal in people with type 1 diabetes. According to the terms of the JDRF Agreement, JDRF will provide research funding of up to $3.4 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, 2022, the Company had received funding under this agreement of $3.4 million. Research and development costs have been offset by a total of $3.4 million over the course of this agreement.
Contract Liabilities
Contract liabilities related to the Company’s collaboration agreements consisted of the following (in thousands):
| | | | | | | | | | | |
| June 30, 2022 | | December 31, 2021 |
| Current portion of contract liabilities | $ | 26 | | | $ | 35 | |
| Contract liabilities, net of current portion | 18,669 | | | — | |
| Total contract liabilities | $ | 18,695 | | | $ | 35 | |
Changes in short-term and long-term contract liabilities for the six months ended June 30, 2022, were as follows: | | | | | |
| Contract Liabilities |
| Balance on January 1, 2022 | $ | 35 | |
| Reclassification of the beginning contract liabilities to revenue, as the result of performance obligations satisfied | (9) | |
| Consideration received in advance and not recognized as revenue | 18,669 | |
| Balance on June 30, 2022 | $ | 18,695 | |
Note 4: Share-Based Compensation
The Company has issued non-qualified stock option awards to management, other key employees, consultants, and non-employee directors. These option awards generally 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, 2022, the Company had total unrecognized stock-based compensation expense for its outstanding stock option awards of approximately $1.7 million, which is expected to be recognized over a weighted average period of 2.3 years. The weighted average grant date fair value of options granted during the six months ended June 30, 2022, and 2021 was $0.65 and $2.21 per option, respectively. The aggregate intrinsic value of the in-the-money awards outstanding at June 30, 2022, was de minimis.
On February 27, 2022, Ms. Deepa Prasad notified the Board of Directors (the “Board”) of the Company of her decision to resign from her positions as Chief Executive Officer, President, and Board member, effective as of March 29, 2022, and served in these roles through March 29, 2022 (the “Effective Date”). Ms. Prasad agreed to serve as a Strategic Advisor to the Company for six months after the Effective Date. Ms. Prasad will retain 624,659 of the outstanding options previously granted to her, which will vest at the end of the 15-month period following the Effective Date. As a result of the separation agreement, these options were modified to accelerate vesting at the Effective Date. These options will remain exercisable for the original ten-year period and the remaining 1,873,976 of her options were cancelled. The additional stock compensation expense for the modification during the six months ended June 30, 2022, was de minimis.
The following table summarizes the activity related to the stock option awards for the six months ended June 30, 2022:
| | | | | | | | | | | |
| Number of Shares | | Weighted
Average Exercise Price |
| Awards outstanding at December 31, 2021 | 7,056,035 | | | $ | 3.19 | |
| Granted | 1,200,000 | | | 0.76 | |
| Forfeited | (2,871,508) | | | 2.29 | |
| Awards outstanding at June 30, 2022 | 5,384,527 | | | $ | 3.12 | |
| Options exercisable at June 30, 2022 | 2,496,888 | | | $ | 5.19 | |
| Weighted average remaining contractual term | 6.1 Years | | |
| Options vested and expected to vest at June 30, 2022 | 4,858,805 | | | $ | 3.33 | |
| Weighted average remaining contractual term | 7.6 Years | | |
Compensation expense related to the grants of stock options is included in research and development and general and administrative expense as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | | Six Months Ended June 30, |
| 2022 | | 2021 | | | 2022 | | 2021 |
| Research and development | $ | 88 | | | $ | 180 | | | | $ | 180 | | | $ | 356 | |
| General and administrative | 79 | | | 272 | | | | 463 | | | 532 | |
| Total share-based compensation expense | $ | 167 | | | $ | 452 | | | | $ | 643 | | | $ | 888 | |
Note 5: Investments
In connection with the Reneo and Anteris License Agreements, the Company has received equity ownership interests of less than 20% of the voting equity of the investee. Further, the Company does not have the ability to exercise significant influence over the investees. The investments are classified as long-term investments in the Company’s Consolidated Balance Sheets.
Reneo completed its initial public offering in April 2021. Prior to Reneo becoming a publicly traded company, the Company’s investment in Reneo did not have a readily determinable fair value and was measured at cost less impairment, adjusted for any changes in observable prices, under the measurement alternative. Subsequent to Reneo’s initial public offering, the Company’s investment in Reneo is considered to have a readily determinable fair value and, as such, is adjusted to its fair value each period with changes in fair value recognized as a component of net loss.
The Company’s investment in Anteris does not have a readily determinable fair value and is measured at cost less impairment, adjusted for any changes in observable prices.
The Company’s investments consist of the following:
| | | | | | | | | | | |
| June 30, 2022 | | December 31, 2021 |
| Equity investment with readily determinable fair value: | | | |
| Reneo common stock | $ | 1,527 | | | $ | 4,928 | |
| | | |
| Equity investment without readily determinable fair values assessed under the measurement alternative: | | | |
| Anteris preferred stock | 4,245 | | | 4,245 | |
| Total | $ | 5,772 | | | $ | 9,173 | |
No adjustments have been made to the value of the Company’s investment in Anteris since its initial measurement either due to impairment or based on observable price changes. The Company recognized an unrealized loss on its investment in Reneo of $0.2 million and $3.4 million for the three and six months ended June 30, 2022, respectively. During the three and six months ended June 30, 2021, the Company recognized an unrealized gain on its investment in Reneo of $2.9 million. These adjustments were recognized as a component of other income/(expense) in the Company’s Condensed Consolidated Statements of Operations.
Note 6: 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.
Novo Nordisk
In February 2007, the Company entered into an Agreement Concerning Glucokinase Activator Project with Novo Nordisk A/S (the “Novo License Agreement”) whereby the Company 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. This agreement was amended in May 2019 to create
milestone payments applicable to certain specific and non-specific areas of therapeutic use. Under the terms of the amended Novo License Agreement, the Company has potential developmental and regulatory milestone payments totaling up to $9.0 million for approval of a product for the treatment of type 1 diabetes, $50.5 million for approval of a product for the treatment of type 2 diabetes, or $115.0 million for approval of a product in any other indication. 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. During the fourth quarter of 2021, the Company made a payment of $2.0 million related to the satisfaction of the milestone to complete the phase 2 trials for TTP399 under this agreement.
Note 7: Leases
The Company leases office space for its headquarters location under an operating lease. This lease commenced in November 2019 after the completion of certain tenant improvements made by the lessor. The lease includes an option to renew for a five-year term as well as an option to terminate after three years, neither of which have been recognized as part of its related right of use assets or lease liabilities as their election was not considered reasonably certain. The Company has notified the lessor that it intends to exercise the early termination option and is negotiating an amendment to the lease. Further, this lease does not include any material residual value guarantee or restrictive covenants.
At each of June 30, 2022, and December 31, 2021, the weighted average incremental borrowing rate for the operating leases held by the Company was 13.1%. At June 30, 2022, and December 31, 2021, the weighted average remaining lease terms for the operating leases held by the Company were 2.6 years and 3.1 years, respectively.
Maturities of lease liabilities for the Company’s operating leases as of June 30, 2022, were as follows (in thousands):
| | | | | |
| 2022 (remaining six months) | $ | 131 | |
| 2023 | 268 | |
| 2024 | 275 | |
| 2025 | 23 | |
| 2026 | — | |
| Thereafter | — | |
| Total lease payments | 697 | |
| Less: imputed interest | (110) | |
| Present value of lease liabilities | $ | 587 | |
Operating lease cost and the related operating cash flows for the six months ended June 30, 2022, and 2021 were immaterial amounts.
Note 8: Redeemable Noncontrolling Interest
The Company is subject to the Exchange Agreement with respect to the vTv Units representing the 23.0% noncontrolling interest in vTv LLC outstanding as of June 30, 2022 (see Note 9). 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) its initial fair value plus accumulated earnings/losses associated with the noncontrolling interest or (2) the redemption value as of the balance sheet date. At June 30, 2022, and December 31, 2021, the redeemable noncontrolling interest was recorded based on the redemption value as of the balance sheet date of $15.9 million and $25.0 million, respectively.
Changes in the Company’s ownership interest in vTv LLC while the Company retains its controlling interest in vTv LLC are accounted for as equity transactions, and the Company is required to adjust noncontrolling interest and equity for
such changes. The following is a summary of net income attributable to vTv Therapeutics Inc. and transfers to noncontrolling interest:
| | | | | | | | | | | | | | | | | | | | | | | |
| For the Three Months Ended June 30, | | For the Six Months Ended June 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
| Net loss attributable to vTv Therapeutics Inc. common shareholders | $ | (3,151) | | | $ | (608) | | | $ | (10,158) | | | $ | (4,849) | |
| (Increase)/Decrease in vTv Therapeutics Inc. accumulated deficit for purchase of LLC Units as a result of common stock issuances | (1,361) | | | (115) | | | 1,071 | | | (2,525) | |
| Change from net loss attributable to vTv Therapeutics Inc. common shareholders and transfers to noncontrolling interest | $ | (4,512) | | | $ | (723) | | | $ | (9,087) | | | $ | (7,374) | |
Note 9: Stockholders’ Deficit
Amendment to Certificate of Incorporation
On May 4, 2021, the Company filed an amendment to its Amended and Restated Certificate of Incorporation (the “Charter Amendment”) to increase the number of shares of Class A common stock that the Company is authorized to issue from 100,000,000 shares of Class A common stock to 200,000,000 shares of Class A common stock, representing an increase of 100,000,000 shares of authorized Class A common stock, with a corresponding increase in the total authorized common stock, which includes Class A common stock and Class B common stock, from 200,000,000 to 300,000,000, and a corresponding increase in the total authorized capital stock, which includes common stock and preferred stock, from 250,000,000 shares to 350,000,000 shares.
G42 Investments Transaction
On May 31, 2022, the Company and G42 Investments entered in to the G42 Purchase Agreement (see Note 3), pursuant to which the Company agreed to sell to G42 Investments 10,386,274 shares of the Company's Class A common stock, par value $0.01 per share at a price per share of approximately $2.41, for an aggregate purchase price of $25.0 million, consisting of (i) $12.5 million in cash at the closing of the transaction and (ii) $12.5 million in the form of a promissory note of G42 Investments to be paid at the one-year anniversary of the execution of the G42 Purchase Agreement.
ATM Offering
In April 2020, the Company entered into the Sales Agreement with Cantor Fitzgerald as the sales agent, pursuant to which the Company may offer and sell, from time to time, through Cantor, shares of its Class A common stock, par value $0.01 per share, having an aggregate offering price of up to $13.0 million by any method deemed to be an “at the market offering” as defined in Rule 415(a)(4) under the Securities Act (the “ATM Offering”). The shares are offered and sold pursuant to the Company’s shelf registration statement on Form S-3. In no event will we sell Class A common stock under this registration statement with a value exceeding more than one-third of the “public float” (the market value of our Class A common stock and any other equity securities that we may issue in the future that are held by non-affiliates) in any 12-calendar month period so long as our public float remains below $75 million.
On January 14, 2021, and June 25, 2021, the Company filed a prospectus supplement in connection with the ATM Offering to increase the size of the at-the-market offering pursuant to which the Company may offer and sell, from time to time, through or to Cantor, as sales agent or principal, shares of the Company’s Class A common stock, by an aggregate offering price of $5.5 million and $50.0 million, respectively.
During the three and six months ended June 30, 2021, the Company sold 2,180,337 shares of its Class A common stock under the ATM Offering for net proceeds of $5.3 million.
During the three and six months ended June 30, 2022, the Company did not sell any shares under the ATM Offering.
Lincoln Park Capital Transaction
On November 24, 2020, the Company entered into the LPC Purchase Agreement and a registration rights agreement (the “Registration Rights Agreement”), pursuant to which the Company has the right to sell to Lincoln Park shares of the Company’s Class A common stock having an aggregate value of up to $47.0 million, subject to certain limitations and conditions set forth in the LPC Purchase Agreement. The Company will control the timing and amount of any sales of shares
to Lincoln Park. pursuant to the LPC Purchase Agreement. During the three and six months ended June 30, 2021, the Company sold 441,726 and 3,941,726 shares under the LPC Purchase Agreement for total proceeds of $1.0 million and $9.1 million, respectively.
During the three and six months June 30, 2022, the Company did not sell any shares under the LPC Purchase Agreement.
Note 10: Related-Party Transactions
MacAndrews & Forbes Incorporated
As of June 30, 2022, subsidiaries and affiliates of MacAndrews & Forbes Incorporated (collectively “MacAndrews”) indirectly controlled 23,084,267 shares of the Company’s Class B common stock and 36,519,212 shares of the Company’s Class A common stock. As a result, MacAndrews’ holdings represent approximately 59.4% 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 further detailed below:
Letter Agreements
The Company has previously entered into the Letter Agreements with MacAndrews. Under the terms of the Letter Agreements, the Company had the right to sell to MacAndrews shares of its Class A common stock at a specified price per share, and MacAndrews has the right (exercisable up to three times) to require the Company to sell to it shares of Class A common stock at the same price. In addition, in connection with and as a commitment fee for the entrance into certain of these Letter Agreements, the Company also issued MacAndrews warrants (the “Letter Agreement Warrants”) to purchase additional shares of the Company’s Class A common stock.
The Letter Agreement Warrants have been recorded as warrant liability, related party within the Company’s Condensed Consolidated Balance Sheets based on their fair value. The issuance of the Letter Agreement Warrants was considered to be a cost of equity recorded as a reduction to additional paid-in capital.
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 Company’s 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. 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”). As of June 30, 2022, MacAndrews had not exchanged any shares under the provisions of the Exchange Agreement.
Tax Receivable Agreement
The Company and MacAndrews are party to a tax receivable agreement (the “Tax Receivable Agreement”), which provides for the payment by the Company to M&F TTP Holdings Two LLC (“M&F”), as successor in interest to vTv Therapeutics Holdings, LLC (“vTv Therapeutics Holdings”), and M&F TTP Holdings LLC (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 commons 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 June 30, 2022.
Investor Rights Agreement
The Company is party to an 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 11: Income Taxes
The Company is subject to U.S. federal income taxes as well as state taxes. The Company did not record an income tax provision for the three months ended June 30, 2022. The Company’s income tax provision for the six months ended June 30, 2022, was $0.2 million related to foreign withholding taxes. The Company did not record an income tax provision for the three months ended June 30, 2021. The Company’s income tax provision for the six months ended June 30, 2021, was a de minimis amount related to foreign withholding taxes.
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 21% on June 30, 2022, is due to the valuation allowance against the Company’s expected net operating losses.
As discussed in Note 10, the Company is party to a tax receivable agreement with a related party 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 certain transactions. As no transactions have occurred which would trigger a liability under this agreement, the Company has not recognized any liability related to this agreement as of June 30, 2022.
Note 12: 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.
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 June 30, | | For the Six Months Ended June 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
| Numerator: | | | | | | | |
| Net loss | $ | (4,091) | | | $ | (841) | | | $ | (13,515) | | | $ | (6,783) | |
| Less: Net loss attributable to noncontrolling interests | (940) | | | (233) | | | (3,357) | | | (1,934) | |
| Net loss attributable to common shareholders of vTv Therapeutics Inc., basic and diluted | (3,151) | | | (608) | | | (10,158) | | | (4,849) | |
| Denominator: | | | | | | | |
| Weighted average vTv Therapeutics Inc. Class A common stock, basic and diluted | 70,366,823 | | | 58,615,137 | | | 68,664,259 | | | 57,549,755 | |
| Net loss per share of vTv Therapeutics Inc. Class A common stock, basic and diluted | $ | (0.04) | | | $ | (0.01) | | | $ | (0.15) | | | $ | (0.08) | |
Potentially dilutive securities not included in the calculation of diluted net loss per share are as follows:
| | | | | | | | | | | |
| June 30, 2022 | | June 30, 2021 |
Class B common stock (1) | 23,093,860 | | | 23,093,860 | |
| Common stock options granted under the Plan | 5,384,527 | | | 4,474,403 | |
| Common stock warrants | 2,014,503 | | | 2,014,503 | |
| Total | 30,492,890 | | | 29,582,766 | |
_____________________________
| | | | | | | | |
| (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. |
Note 13: Fair Value of Financial Instruments
The carrying amount of certain of the Company’s financial instruments, including cash and cash equivalents, net accounts receivable, note receivable, accounts payable, and other accrued liabilities, approximate fair value due to their short-term nature.
Assets and Liabilities Measured at Fair Value on a Recurring Basis
The Company evaluates its financial assets and liabilities subject to fair value measurements on a recurring basis to determine the appropriate level in which to classify them for each reporting period. This determination requires significant judgments. The Company determined that the promissory note receivable was level 2 and the fair value measurement was based on the market yield curves. The following table summarizes the conclusions reached regarding fair value measurements as of June 30, 2022, and December 31, 2021 (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| Balance at June 30, 2022 | | Quoted Prices in Active
Markets for Identical Assets
(Level 1) | | Significant Other Observable
Inputs
(Level 2) | | Significant Unobservable Inputs
(Level 3) |
| Assets: | | | | | | | |
| Equity securities with readily determinable fair value | $ | 1,527 | | | $ | 1,527 | | | $ | — | | | $ | — | |
| Total | $ | 1,527 | | | $ | 1,527 | | | $ | — | | | $ | — | |
| | | | | | | |
| Liabilities: | | | | | | | |
Warrant liability, related party (1) | $ | 717 | | | $ | — | | | $ | — | | | $ | 717 | |
| Total | $ | 717 | | | $ | — | | | $ | — | | | $ | 717 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Balance at December 31, 2021 | | Quoted Prices in Active
Markets for Identical Assets
(Level 1) | | Significant Other Observable
Inputs
(Level 2) | | Significant Unobservable Inputs
(Level 3) |
| Assets: | | | | | | | |
| Equity securities with readily determinable fair value | $ | 4,928 | | | $ | 4,928 | | | $ | — | | | $ | — | |
| Total | $ | 4,928 | | | $ | 4,928 | | | $ | — | | | $ | — | |
| | | | | | | |
| Liabilities: | | | | | | | |
Warrant liability, related party (1) | $ | 1,262 | | | $ | — | | | $ | — | | | $ | 1,262 | |
| Total | $ | 1,262 | | | $ | — | | | $ | — | | | $ | 1,262 | |
_____________________________
| | | | | |
| (1) | Fair value determined using the Black-Scholes option pricing model. Expected volatility is based on the historical volatility of the Company’s common stock over the most recent period. The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of valuation. |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Changes in Level 3 instruments for the six months ended June 30, |
| Balance at January 1 | | Net Change in
fair value included in
earnings | | Purchases /
Issuance | | Sales /
Repurchases | | Balance at June 30, |
| 2022 | | | | | | | | | |
| Warrant liability, related party | $ | 1,262 | | | $ | (545) | | | $ | — | | | $ | — | | | $ | 717 | |
| Total | $ | 1,262 | | | $ | (545) | | | $ | — | | | $ | — | | | $ | 717 | |
| | | | | | | | | |
| 2021 | | | | | | | | | |
| Warrant liability, related party | $ | 2,871 | | | $ | 717 | | | $ | — | | | $ | — | | | $ | 3,588 | |
| Total | $ | 2,871 | | | $ | 717 | | | $ | — | | | $ | — | | | $ | 3,588 | |
During the three and six months ended June 30, 2021, Reneo completed its initial public offering. As a result, the fair value of the Company’s investment in Reneo’s common stock now has a readily determinable market value and is no longer eligible for the practical expedient for investments without readily determinable fair market values. As such, the Company’s investment in Reneo is adjusted each reporting period to its fair value based on its most recent closing price, which is considered a Level 1 fair value measurement under the fair value hierarchy.
There were no transfers into or out of level 3 instruments and/or between level 1 and level 2 instruments during the three and six months ended June 30, 2022. Gains and losses recognized due to the change in fair value of the warrant liability, related party are recognized as a component of other (expense) income, related party in the Condensed Consolidated Statements of Operations.
The fair value of the Letter Agreement Warrants was determined using the Black-Scholes option pricing model or option pricing models based on the Company’s current capitalization. Expected volatility is based on the historical volatility of the Company’s common stock over the most recent period. The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of valuation. Significant inputs utilized in the valuation of the Letter Agreement Warrants as of June 30, 2022, and December 31, 2021, were:
| | | | | | | | | | | | | | | | | |
| June 30, 2022 | | December 31, 2021 |
| Range | Weighted Average | | Range | Weighted Average |
| Expected volatility | 83.47% - 138.02% | 117.64% | | 82.68% - 142.86% | 128.13% |
| Risk-free interest rate | 2.95% - 3.00% | 3.00% | | 0.95% - 1.26% | 1.15% |
The weighted average expected volatility and risk-free interest rate was based on the relative fair values of the warrants.
Changes in the unobservable inputs noted above would impact the amount of the liability for the Letter Agreement Warrants. Increases (decreases) in the estimates of the Company’s annual volatility would increase (decrease) the liability and an increase (decrease) in the annual risk-free rate would increase (decrease) the liability.
Note 14: Subsequent Events
CinPax Partnership
On July 25, 2022, the Company and CinPax, LLC (“CinPax”), a subsidiary of CinRx Pharma, LLC (“CinRx”) entered into a Common Stock and Warrant Purchase Agreement (the “CinRx Purchase Agreement”). Under the terms of the CinRx Purchase Agreement, CinPax acquired 4,154,549 shares of Class A common stock at an issue price of approximately $2.41 per share, for an aggregate purchase price of $10.0 million, consisting of (i) $6.0 million in cash at the closing of the transaction and (ii) $4.0 million in the form of a promissory note of CinPax payable on November 22, 2022. The CinRx Purchase Agreement also provides CinRx a warrant to purchase up to 1,200,000 shares of Class A common stock at an initial exercise price of approximately $0.72 per share, that become exercisable upon agreed vesting triggers (including FDA Approval of TTP399). In addition to the investment, the CinRx Purchase Agreement sets forth the terms under which the Company will leverage the CinRx team’s industry experience to collaborate on the oversight of the clinical trials for pharmaceutical products that contain TTP399.
Leadership
On July 25, 2022, the Company entered into an employment agreement with Paul Sekhri, who was appointed President and Chief Executive Officer and a member of the Board (the “Sekhri Employment Agreement”). In addition to outlining the terms of Mr. Sekhri’s compensation, it also provides for the grant of stock options (the “Options”) to purchase 2,200,000 shares of Class A common stock at an exercise price of $0.79 per share pursuant to an inducement award agreement (the “Inducement Award Agreement”). Subject to potential acceleration upon the achievement of certain performance metrics as set forth in the Inducement Award Agreement, 25% of the Options will vest on the first anniversary of the grant date and the remaining 75% of the Options will vest quarterly over three years thereafter. Upon certain terminations of employment, a portion of the Options will vest on a pro rata basis based on the number of days employed during the four-year term.