VTV THERAPEUTICS INC. As used in this Quarterly Report on Form 10-Q, the "Company", the "Registrant", "we" or "us" refer tovTv Therapeutics Inc. and "vTv LLC" refers tovTv Therapeutics LLC . The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our financial statements and related notes that appear elsewhere in this report. In addition to historical financial information, the following discussion contains forward-looking statements that reflect our plans, estimates, assumptions and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this report under "Part II, Other Information-Item 1A, Risk Factors." Forward-looking statements include information concerning our possible or assumed future results of operations, business strategies and operations, financing plans, potential growth opportunities, potential market opportunities, potential results of our drug development efforts or trials, and the effects of competition. Forward-looking statements include all statements that are not historical facts and can be identified by terms such as "anticipates," "believes," "could," "seeks," "estimates," "expects," "intends," "may," "plans," "potential," "predicts," "projects," "should," "will," "would" or similar expressions and the negatives of those terms. Given these uncertainties, you should not place undue reliance on these forward-looking statements. Also, forward-looking statements represent our management's plans, estimates, assumptions and beliefs only as of the date of this report. Except as required by law, we assume no obligation to update these forward-looking statements publicly or to update the reasons actual results could differ materially from those anticipated in these forward-looking statements, even if new information becomes available in the future.
Overview
We are a clinical-stage pharmaceutical company focused on treating metabolic
diseases to minimize their long-term complications through end-organ protection.
We have an innovative pipeline of first-in-class small molecule clinical and
pre-clinical drug candidates for the treatment of a wide range of metabolic
diseases and their long-term complications. Our pipeline is led by our programs
for the treatment of type 1 diabetes (TTP399) and for Alzheimer's disease ("AD")
(azeliragon). We completed the Simplici-T1 Study, an adaptive Phase 1b/2 study
supported by JDRF International ("JDRF"), to explore the effects of TTP399 in
patients with type 1 diabetes at the beginning of 2020. In February 2020 , we
reported positive results from the Phase 2 - Part 2 confirming phase of this
study which achieved its primary objective by demonstrating statistically
significant improvements in HbA1c (long-term blood sugar) for TTP399 compared to
placebo. We are actively working on the design for pivotal and registration
studies for TPP399, with input from the FDA.
Our second clinical drug candidate in Phase 2 development is azeliragon
(TTP488), an orally administered, small molecule antagonist targeting the
receptor for advanced glycation endproducts ("RAGE"). We are currently enrolling
patients in a Phase 2 study to evaluate azeliragon as a potential treatment of
mild-AD in patients with type 2 diabetes (the "Elevage Study"). However, the
ongoing effects of the Coronavirus ("COVID-19") pandemic/outbreak have impacted
the conduct and timing of the Elevage Study as some of the clinical trial sites
at which the Elevage Study is taking place have reduced, delayed or suspended
activities as precautionary measures and seen a decrease in participants seeking
to join clinical trials, as more further described in the "Impact of COVID-19"
section below.
We are also planning an adaptive Phase 1b/2 clinical trial assessing the
pharmacokinetics, pharmacodynamics, safety and tolerability of TTP273, an orally
administered non-peptidic agonist that targets the glucagon-like peptide 1
receptor ("GLP-1r"), in patients with cystic fibrosis related diabetes. Finally,
we are continuing to advance the non-clinical development of our Nrf2/Bach1
modulators (HPP971 and HPP3033).
In addition to our internal development programs, we are furthering the clinical
development of three other programs, a small molecule GLP-1r agonist, a PDE4
inhibitor, and a PPAR-delta agonist, through partnerships with pharmaceutical
partners via licensing arrangements. In June 2020 , Reneo Pharmaceuticals
("Reneo") announced positive preliminary results from a recently completed phase
1 clinical study of REN001, a PPAR-delta agonist vTv licensed to Reneo under a
license agreement, for primary mitochondrial myopathies ("PMM") and the receipt
of Orphan Drug Designation from the FDA for REN001 for the treatment of PMM.
Impact of COVID-19
We have been actively monitoring the COVID-19 situation and its impact on our business, employees, patients, partners, suppliers and vendors. Our financial results for the three and six months endedJune 30, 2020 were not significantly impacted by COVID-19. While we are continuing the on-going Elevage Study that is underway at sites inthe United States andCanada , COVID-19 precautions have directly and indirectly impacted the timeline for this clinical trial, as it has for many other clinical trials. In particular, the reduced, delayed or suspended activities of the clinical trial sites participating in the Elevage Study as precautionary measures in response to COVID-19 has delayed screening and enrollment of potential subjects into the study which in turn will have an impact on the timing of completion and announcement of study results. In response, we have worked closely with our IRB and 23 -------------------------------------------------------------------------------- clinical trial sites to implement appropriate responses in light of the remote working arrangements and travel restrictions imposed by various governments. Separately, vTv has continued to make adjustments that allow us to maintain our business operations during the quarter despite current circumstances, including establishing remote working options for all employees. Given the scope of the pandemic, we cannot predict the impact of the progression of the COVID-19 outbreak on future clinical trial and financial results due to a variety of factors, including the continued good health of our employees, the ability of our third party suppliers, vendors, manufacturers and partners to continue to operate and provide services, the ability of our clinical trial sites to continue or resume operations, any further government and/or public actions taken in response to the pandemic and the ultimate duration of the COVID-19 outbreak/pandemic.
The following table summarizes our current drug candidates and their respective stages of development:
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Our Type 1 Diabetes Program -TTP399
In light of the positive results of our Simplici-T1 Study, an adaptive Phase 2 clinical trial of TTP399 in adult patients with type 1 diabetes, we requested a Type C meeting with the FDA to discuss the trial design and other requirements for the next stage of development for TTP399. The Company received written responses from the FDA in June and is currently engaged in a written dialogue with the FDA to determine the appropriate subsequent studies to be performed with TTP399 to support its eventual registration and approval as an oral adjunct therapy to insulin. Our current expectation, based on the feedback from the FDA to date, is that the Company will commence a clinical trial with a six-month treatment period by the end of 2020, followed by a second clinical trial with a six-month treatment period to be initiated nine to twelve months thereafter. We would also include a six-month open label extension in the first trial to provide patient data of the necessary duration to support the safety and efficacy of TTP399. Based upon the current FDA feedback we have received to date, we estimate that the development plan for TTP399, including pivotal trials, clinical pharmacology, active pharmaceutical ingredient and drug product development and manufacturing, to cost between$75 and$90 million . Our current planning will continue to evolve based on additional feedback we receive from the FDA.
Our Dementia with Diabetes Program - Azeliragon
We are currently conducting the Elevage study, a Phase 2 proof of concept clinical trial to confirm the cognitive benefits evidenced in a post-hoc analysis of the diabetes subgroup ( n=47) of the STEADFAST A study. In response to the delays in recruiting and enrolling patients in the Elevage Study created by COVID-19, the Company will cease enrolling new patients bySeptember 30, 2020 , with a target of approximately 50 subjects enrolled in the study. By doing so, we will continue to maintain the anticipated topline read-out of results in the second quarter of 2021. Despite the reduction in total enrollment, the study is expected to be adequately powered to demonstrate efficacy on the primary endpoint of improved cognition as measured by the ADAS-cog. In other material aspects, the trial has been administered consistent with the protocol, despite the challenges presented by COVID-19. The Company continues to evaluate the ongoing progress of the trial and support efforts to ensure its timely completion. 24 --------------------------------------------------------------------------------
Holding Company Structure
vTv Therapeutics Inc. is a holding company, and its principal asset is a controlling equity interest in vTvTherapeutics LLC ("vTv LLC"), the principal operating subsidiary. We have determined that vTv LLC is a variable-interest entity ("VIE") for accounting purposes and thatvTv 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 ofvTv Therapeutics Inc. is also the senior management of vTv LLC) it has the power to direct all of the activities of vTv LLC, which include those that most significantly impact vTv LLC's economic performance.vTv Therapeutics Inc. has therefore consolidated vTv LLC's results under the VIE accounting model in its consolidated financial statements. Financial Overview Revenue To date, we have not generated any revenue from drug sales. Our revenue has been primarily derived from up-front proceeds and research fees under collaboration and license agreements. In the future, we may generate revenue from a combination of product sales, license fees, milestone payments and royalties from the sales of products developed under licenses of our intellectual property. We expect that any revenue we generate will fluctuate from quarter to quarter as a result of the timing and amount of license fees, milestone and other payments, and the amount and timing of payments that we receive upon the sale of our products, to the extent any are successfully commercialized. If we fail to complete the development of our drug candidates in a timely manner or obtain regulatory approval for them, our ability to generate future revenue and our results of operations and financial position will be materially adversely affected.
Research and Development Expenses
Since our inception, we have focused our resources on our research and
development activities, including conducting preclinical studies and clinical
trials, manufacturing development efforts and activities related to regulatory
filings for our drug candidates. We recognize research and development expenses
as they are incurred. Our direct research and development expenses consist
primarily of external costs such as fees paid to investigators, consultants,
central laboratories and clinical research organizations ("CRO(s)") in
connection with our clinical trials, and costs related to acquiring and
manufacturing clinical trial materials. Our indirect research and development
costs consist primarily of cash and share-based compensation costs, the cost of
employee benefits and related overhead expenses for personnel in research and
development functions. Since we typically use our employee and infrastructure
resources across multiple research and development programs such costs are not
allocated to the individual projects.
From our inception, including our predecessor companies, through
Our research and development expenses by project for the three and six months
ended
Three Months Ended June 30, Six Months Ended June 30,
2020 2019 2020 2019
Direct research and development
expense:
Azeliragon $ 1,580 $ 2,454 $ 3,981 $ 3,157
TTP399 (72 ) 530 328 1,130
Other projects 217 143 587 334
Indirect research and
development expense 784 1,101 1,817 2,429
Total research and development
expense $ 2,509 $ 4,228 $
6,713
We plan to continue to incur significant research and development expenses for the foreseeable future as we continue the development of TTP399 and azeliragon and further advance the development of our other drug candidates, subject to the availability of additional funding. The successful development of our clinical and preclinical drug candidates is highly uncertain. At this time, we cannot reasonably estimate the nature, timing or costs of the efforts that will be necessary to complete the remainder of the development of any of our clinical or preclinical drug candidates or the period, if any, in which material net cash inflows from these drug candidates may commence. This is due to the numerous risks and uncertainties associated with the development of our drug candidates, including:
• the uncertainty of the scope, rate of progress and expense of our ongoing,
as well as any additional, clinical trials and other research and
development activities;
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• the potential benefits of our candidates over other therapies;
• our ability to market, commercialize and achieve market acceptance for any
of our drug candidates that we are developing or may develop in the
future;
• future clinical trial results;
• our ability to enroll patients in our clinical trials;
• the timing and receipt of regulatory approvals, if any; and
• the filing, prosecuting, defending and enforcing of patent claims and
other intellectual property rights, and the expense of doing so.
A change in the outcome of any of these variables with respect to the
development of a drug candidate could mean a significant change in the costs and
timing associated with the development of that drug candidate. For example, if
the FDA or another regulatory authority were to require us to conduct clinical
trials beyond those that we currently anticipate will be required for the
completion of clinical development of a drug candidate, or if we experience
significant delays in enrollment in any of our clinical trials, we could be
required to expend significant additional financial resources and time with
respect to the development of that drug candidate.
General and Administrative Expenses
General and administrative expenses consist primarily of salaries, benefits and related costs for employees in executive, finance, corporate development, human resources and administrative support functions. Other significant general and administrative expenses include accounting and legal services, expenses associated with obtaining and maintaining patents, cost of various consultants, occupancy costs and information systems.
Interest Expense
Interest expense primarily consists of cash and non-cash interest expense related to our Venture Loan and Security Agreement (the "Loan Agreement") with Horizon Technology Finance Corporation andSilicon Valley Bank . Cash interest on the Loan Agreement is recognized at a floating interest rate equal to 10.5% plus the amount by which the one-month London Interbank Offer Rate ("LIBOR") exceeds 0.5%. Non-cash interest expense represents the amortization of the costs incurred in connection with the Loan Agreement, the allocated fair value of the warrants to purchase shares of our Class A Common Stock issued in connection with the Loan Agreement (the "Warrants") and the accretion of the final interest payments (which will be paid in cash upon loan maturity), all of which are recognized in our Condensed Consolidated Statement of Operations using the effective interest method.
Results of Operations
Comparison of the three months ended
The following table sets forth certain information concerning our results of operations for the periods shown:
(dollars in thousands) Three Months Ended June 30, Statement of operations data: 2020 2019 Change Revenue $ -$ 1,828 $ (1,828 ) Operating expenses: Research and development 2,509 4,228 (1,719 ) General and administrative 1,695 2,392 (697 ) Total operating expenses 4,204 6,620 (2,416 ) Operating loss (4,204 ) (4,792 ) 588 Interest income - 16 (16 ) Interest expense (222 ) (514 ) 292 Other (expense) income, net (565 ) 276 (841 ) Loss before income taxes (4,991 ) (5,014 ) 23 Income tax provision - 100 (100 ) Net loss before noncontrolling interest (4,991 ) (5,114 ) 123 Less: net loss attributable to noncontrolling (1,623 ) (2,232 ) 609 interest Net loss attributable to vTv Therapeutics Inc.$ (3,368 ) $ (2,882 ) $ (486 ) 26
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Revenue
We did not recognize any revenue for the three months endedJune 30, 2020 and revenue was$1.8 million for the three months endedJune 30, 2019 . For the three months endedJune 30, 2019 , the revenue recognized related to the amortization of amounts deferred at the initiation of our license agreement withReneo Pharmaceuticals, Inc. ("Reneo") which were related to the transfer of technology performance obligations and the recognition of a milestone payment under our license agreement withNewsoara Biopharma Co., Ltd. , ("Newsoara").
Research and Development Expenses
Research and development expenses were$2.5 million and$4.2 million for the three months endedJune 30, 2020 and 2019, respectively. The decrease in research and development expenses during the period of$1.7 million , or 40.7%, was primarily due to a decrease in clinical trial costs of$0.9 million for azeliragon which was mainly driven by the higher spending in the 2019 period due to the startup activities for the trial. Also, clinical trial costs for TTP399 decreased$0.6 million due to completion of the Simplici-T1 Study in early 2020.
General and Administrative Expenses
General and administrative expenses were$1.7 million and$2.4 million for the three months endedJune 30, 2020 and 2019, respectively. The decrease of$0.7 million was driven by an adjustment to the asset retirement obligation recorded related to our leased facilities as well as a reduction in facility and travel expenses. Interest Expense Interest expense was$0.2 million and$0.5 million for the three months endedJune 30, 2020 and 2019, respectively. The decrease in interest expense was driven by lower principal balances outstanding in the 2020 period based on the scheduled monthly principal payments under the Loan Agreement. Interest expense relates to the cash and non-cash interest for our Loan Agreement which bears interest at 10.5% plus the amount by which the one-month LIBOR exceeds 0.5%.
Comparison of the six months ended
The following table sets forth certain information concerning our results of operations for the periods shown:
(dollars in thousands) Six Months Ended June 30, Statement of operations data: 2020 2019 Change Revenue$ 8 $ 2,749 $ (2,741 ) Operating expenses: Research and development 6,713 7,050 (337 ) General and administrative 4,145 4,778 (633 ) Total operating expenses 10,858 11,828 (970 ) Operating loss (10,850 ) (9,079 ) (1,771 ) Interest income 12 26 (14 ) Interest expense (390 ) (1,140 ) 750 Other (expense) income, net (928 ) 1,197 (2,125 ) Loss before income taxes (12,156 ) (8,996 ) (3,160 ) Income tax provision - 100 (100 ) Net loss before noncontrolling interest (12,156 ) (9,096 ) (3,060 ) Less: net loss attributable to noncontrolling (4,064 ) (4,059 ) (5 ) interest Net loss attributable to vTv Therapeutics Inc.$ (8,092 ) $ (5,037 ) $ (3,055 ) Revenue Revenue was insignificant for the six months endedJune 30, 2020 and was$2.7 million for the six months endedJune 30, 2019 . During each of these periods, our revenue was related to the recognition of amounts realized from license performance obligations. For the six months endedJune 30, 2019 , the revenue recognized related to the amortization of amounts deferred at the initiation of our license agreement with Reneo which were related to the transfer of technology performance obligations and the recognition of a milestone payment under our license agreement with Newsoara. 27 --------------------------------------------------------------------------------
Research and Development Expenses
Research and development expenses were$6.7 million and$7.1 million for the six months endedJune 30, 2020 and 2019, respectively. The decrease in research and development expenses during the period of$0.3 million , or 4.8%, was primarily due to a decrease in costs for the development of TTP399 of approximately$0.8 million resulting from the completion of the Simplici-T1 Study in early 2020 as well as decreases in personnel costs of approximately$0.3 million . These decreases were offset by increases in the cost for the Elevage study of approximately$0.8 million as increases in recruitment and subject visit costs in the six months endedJune 30, 2020 outweighed the higher startup costs incurred in the 2019 period.
General and Administrative Expenses
General and administrative expenses were$4.1 million and$4.8 million for the six months endedJune 30, 2020 and 2019, respectively. The decrease of approximately$0.6 million was driven primarily by an adjustment to the asset retirement obligation recorded related to our leased facilities as well as a reduction in facility and travel expenses.
Interest Expense
Interest expense was$0.4 million and$1.1 million for the six months endedJune 30, 2020 and 2019, respectively. The decrease in interest expense was driven by lower principal balances outstanding in the 2020 period based on the scheduled monthly principal payments under the Loan Agreement. Interest expense relates to the cash and non-cash interest for our Loan Agreement which bears interest at 10.5% plus the amount by which the one-month LIBOR exceeds 0.5%.
Liquidity and Capital Resources
Liquidity and Going Concern
As ofJune 30, 2020 , we have an accumulated deficit of$268.9 million as well as a history of negative cash flows from operating activities. We anticipate that we will continue to incur losses for the foreseeable future as we continue our clinical trials. Further, we expect that we will need additional capital to continue to fund our operations. As ofJune 30, 2020 , our liquidity sources included cash and cash equivalents of$6.4 million and$3.0 million of remaining funds available under the letter agreement entered into withMacAndrews and Forbes Group LLC ("MacAndrews") inDecember 2019 . Further, we have remaining availability of$5.4 million under our Controlled Equity OfferingSM Sales Agreement (the "Sales Agreement") withCantor 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 the "ATM Offering" section below for further details. Note that the Third Amendment to the Loan Agreement eliminated the requirement to maintain a minimum cash balance under the Loan Agreement. Based on our current operating plan, we believe that our current cash and cash equivalents, remaining funds available under the Letter Agreements, and availability under the ATM Offering, if fully utilized, will allow us to meet our liquidity requirements throughSeptember 2020 . Consequentially, there is substantial doubt about our ability to continue as a going concern. In addition to available cash and cash equivalents and available funds discussed above, we are seeking possible additional partnering opportunities for our GKA, GLP-1r and other drug candidates which we believe may provide additional cash for use in our operations and the continuation of the clinical trials for our drug candidates. We are currently enrolling patients in the Elevage Study and are planning additional trial(s) of TTP399 in patients with type 1 diabetes. In order to complete these trials and continue the Company's operations, we will require additional financing. We are evaluating 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. ATM Offering OnApril 24, 2020 , we entered into the Sales Agreement withCantor Fitzgerald pursuant to which the Company may offer and sell, from time to time, through or toCantor Fitzgerald , as sales agent or principal, shares of the Company's Class A common stock having an aggregate offering price of up to$13.0 million . The Company is not obligated to sell any shares under the Sales Agreement. Under the terms of the Sales Agreement, the Company will payCantor Fitzgerald a commission of up to 3% of the aggregate proceeds from the sale of shares and reimburse certain legal fees or other disbursements. As ofJune 30, 2020 , we have sold$7.6 million worth of Class A common stock under the ATM Offering for net proceeds of$7.3 million . Letter Agreements We have entered into the Letter Agreements withMacAndrews . Under the terms of the Letter Agreements, we have the right to sell toMacAndrews shares of Class A Common Stock at a specified price per share, andMacAndrews has the right (exercisable up to three times) to require us to sell to it shares of Class A Common Stock at the same price. In addition, in connection with the entrance 28 -------------------------------------------------------------------------------- into certain of these Letter Agreements, we also issuedMacAndrews warrants (the "Letter Agreement Warrants") to purchase additional shares of our Class A Common Stock.
Certain terms of these Letter Agreements are set forth in the table below:
December 11, 2018 March 18, 2019 September 26, 2019 December 23, 2019
Letter Agreement Letter Agreement Letter Agreement Letter AgreementAggregate dollar value to be sold under agreement$10.0 million $9.0 million $10.0 million $10.0 million Specified purchase price per share $ 1.84 $ 1.65 $ 1.46 $ 1.60 Expiration date of letter agreement December 11, 2019 March 18, 2020 September 26, 2020 December 23, 2020 Shares available to be issued under related warrants 340,534 - 400,990 365,472 Exercise price of related warrants $ 2.12 $ - $ 1.68 $ 1.84 Expiration date of related warrants December 11, 2025 September 26, 2026 December 23, 2026 Total shares issued as of June 30, 2020 5,434,783 5,454,546 6,849,316 4,375,000 Remaining shares to be issued as of June 30, 2020 - - - 1,875,000 Debt Transaction InOctober 2016 , we and vTv LLC entered into the Loan Agreement with Horizon Technology Finance Corporation andSilicon Valley Bank , under which we have borrowed$20.0 million . This agreement was amended onApril 1, 2020 (the "Second Amendment") and again onJuly 29, 2020 (the "Third Amendment"). The effect of these amendments was to extend the maturity dates of the loans and eliminate the minimum cash balance requirements. Each loan tranche bears interest at a floating rate equal to 10.5% plus the amount by which the one-month LIBOR exceeds 0.5%. As ofAugust 3, 2020 ,$3.2 million aggregate principal balance remains outstanding under the Loan Agreement. Additionally, each tranche includes a final interest payment due at its maturity which are further detailed below. We borrowed the first tranche of$12.5 million upon the close of the Loan Agreement inOctober 2016 . The first tranche originally required only monthly interest payments untilMay 1, 2018 , followed by equal monthly payments of principal plus accrued interest through the scheduled maturity date onMay 1, 2020 . In connection with the Third Amendment, the maturity date of the first tranche was extended toSeptember 1, 2020 . In addition, a final payment for the first tranche loan equal to$0.8 million will be due onSeptember 1, 2020 , or such earlier date specified in the Loan Agreement, as amended. We borrowed the second tranche of$7.5 million inMarch 2017 . The second tranche required only monthly interest payments untilOctober 1, 2018 , followed by equal monthly payments of principal plus accrued interest through the scheduled maturity date onOctober 1, 2020 . In connection with the Second Amendment, the maturity date of the second tranche was extended toJanuary 1, 2021 . In addition, a final payment for the second tranche loan equal to$0.5 million was originally due onOctober 1, 2020 , or such earlier date specified in the Loan Agreement. In connection with the Second and Third Amendments, the due date for this final payment was extended toJanuary 1, 2021 , or such earlier date specified in the Loan Agreement, and the total amount of the payment was increased to$0.8 million . For each of the first and second tranches, the Second and Third Amendments require only monthly interest payments on the outstanding principal balance for the amounts due onApril 1, 2020 , throughSeptember 1, 2020 . As amended, the remaining principal balance and final interest payment under the first tranche is payable upon maturity onSeptember 1, 2020 . Further, the Second and Third Amendments require equal monthly principal payments plus accrued interest for the second tranche beginningSeptember 1, 2020 through the scheduled maturity date onJanuary 1, 2021 . If we repay all or a portion of the loan prior to the applicable maturity date, we will pay the Lenders a prepayment penalty fee, based on a percentage of the then outstanding principal balance equal to 2.0%. In connection with the Loan Agreement, we issued to the Lenders warrants to purchase shares of our Class A common stock (the "Warrants"). OnOctober 28, 2016 , we issued Warrants to purchase 152,580 shares of our Class A common stock at a per share exercise price of$6.39 per share, which aggregate exercise price represents 6.0% of the principal amount borrowed under the first tranche of the Loan Agreement and 3.0% of the amount available under the second tranche of the Loan Agreement. OnMarch 24, 2017 , in connection with the funding of the second tranche, we issued Warrants to purchase 38,006 shares of our Class A common stock at a per share exercise price of$5.92 per share, which aggregate exercise price represents 3.0% of the principal amount of the second tranche. The Warrants will expire seven years from their date of issuance. 29 -------------------------------------------------------------------------------- The Loan Agreement includes customary affirmative and restrictive covenants, including, but not limited to, restrictions on the payment of dividends or other equity distributions and the incurrence of debt or liens upon the assets of the Company or its subsidiaries. The Loan Agreement does not contain any financial maintenance covenants other than a requirement to maintain a minimum cash balance, which was removed in connection with the Third Amendment. The Loan Agreement includes customary events of default, including payment defaults, covenant defaults and material adverse change default. Upon the occurrence of an event of default and following any applicable cure periods, a default interest rate of an additional 5% will be applied to the outstanding loan balances, and the Lenders may declare all outstanding obligations immediately due and payable and take such other actions as set forth in the Loan Agreement. As a result of the termination of the STEADFAST Study, we granted the Lenders a first priority security interest in all of our intellectual property, subject to certain limited exceptions. Cash Flows Six Months Ended June 30, 2020 2019 (dollars in thousands) Net cash used in operating activities$ (10,354 ) $
(10,947 )
Net cash provided by investing activities - -
Net cash provided by financing activities 12,469 10,726
Net increase (decrease) in cash and cash equivalents $ 2,115 $ (221 )
Operating Activities
For the six months ended
Investing Activities
There were no cash flows from investing activities for the three months ended
Financing Activities For the six months endedJune 30, 2020 , net cash provided by financing activities increased by$1.8 million from the six months endedJune 30, 2019 , driven by increases in funding from equity issuances in the relative periods. Further, repayments under the Loan Agreement decreased as fewer principal payments were made in the 2020 period due to the impact of the Second and Third Amendments.
Future Funding Requirements
To date, we have not generated any revenue from drug product sales. We do not know when, or if, we will generate any revenue from drug product sales. We do not expect to generate revenue from drug sales unless and until we obtain regulatory approval of and commercialize any of our drug candidates. At the same time, we expect our expenses to continue or to increase in connection with our ongoing development activities, particularly as we continue the research, development and clinical trials of, and seek regulatory approval for, our drug candidates. In addition, subject to obtaining regulatory approval of any of our drug candidates, we expect to incur significant commercialization expenses for product sales, marketing, manufacturing and distribution. We anticipate that we will need substantial additional funding in connection with our continuing operations. Based on our current operating plan, we believe that our current cash and cash equivalents, the remaining funding committed under the Letter Agreements and the amounts available under our ATM Offering, if fully utilized, will allow us to meet our liquidity requirements throughSeptember 2020 . In addition to the available cash and cash equivalents and other sources of liquidity, we are seeking possible additional partnering opportunities for our GKA, GLP-1r and other drug candidates which we believe may provide additional cash for use in our operations and the continuation of the clinical trials for our drug candidates. We are also evaluating several financing strategies to fund the clinical trials of TTP399 and azeliragon, including direct equity investments and future public offerings of our common stock. The timing and availability of such financing are not yet known. We have based our estimates on assumptions that may prove to be wrong, and we may use our available capital resources sooner than we currently expect. Because of the numerous risks and uncertainties associated with the development and commercialization of our drug candidates, we are unable to estimate the amounts of increased capital outlays and operating expenditures necessary to complete the development of our drug candidates. 30 --------------------------------------------------------------------------------
Our future capital requirements will depend on many factors, including:
• The progress, costs, results and timing of our planned registrational
trial(s) to evaluate TTP399 as a potential treatment of type 1 diabetes
and our sequential Phase 2/3 trials to evaluate azeliragon as a potential
treatment of mild-AD in patients with type 2 diabetes;
• the willingness of the FDA to rely upon our completed and planned clinical
and preclinical studies and other work, as the basis for review and
approval of our drug candidates;
• the outcome, costs and timing of seeking and obtaining FDA and any other
regulatory approvals;
• the number and characteristics of drug candidates that we pursue,
including our drug candidates in preclinical development;
• the ability of our drug candidates to progress through clinical
development successfully;
• our need to expand our research and development activities;
• the costs associated with securing, establishing and maintaining
commercialization capabilities;
• the costs of acquiring, licensing or investing in businesses, products,
drug candidates and technologies;
• our ability to maintain, expand and defend the scope of our intellectual
property portfolio, including the amount and timing of any payments we may
be required to make, or that we may receive, in connection with the
licensing, filing, prosecution, defense and enforcement of any patents or
other intellectual property rights;
• our need and ability to hire additional management and scientific and
medical personnel;
• the effect of competing technological and market developments;
• our need to implement additional internal systems and infrastructure,
including financial and reporting systems;
• the economic and other terms, timing and success of our existing licensing
arrangements and any collaboration, licensing or other arrangements into
which we may enter in the future;
• the amount of any payments we are required to make to M&F TTP Holdings Two
LLC in the future under the Tax Receivable Agreement; and
• the impact and duration of the COVID-19 outbreak / pandemic.
Until such time, if ever, as we can generate substantial revenue from drug
sales, we expect to finance our cash needs through a combination of equity
offerings, debt financings, marketing and distribution arrangements and other
collaborations, strategic alliances and licensing arrangements. We do not
currently have any committed external source of funds other than those available
through the Letter Agreements. We may however, be able to utilize our ATM
Offering to provide an additional $5.4 million of funds upon the sale of our
Class A common stock. In addition, we are evaluating several financing
strategies to fund the on-going and future clinical trials of TTP399 and
azeliragon, including direct equity investments and future public offerings of
our common stock. To the extent that we raise additional capital through the
sale of equity or convertible debt securities, the ownership interests of our
common stockholders will be diluted, and the terms of these securities may
include liquidation or other preferences that adversely affect the rights of our
common stockholders. Debt financing and preferred equity financing, if
available, may involve agreements that include covenants that will further limit
or restrict our ability to take specific actions, such as incurring additional
debt, making capital expenditures or declaring dividends. If we raise additional
funds through collaborations, strategic alliances or marketing, distribution or
licensing arrangements with third parties, we may be required to relinquish
valuable rights to our technologies, future revenue streams or drug candidates
or grant licenses on terms that may not be favorable to us. If we are unable to
obtain additional funding, we could be forced to delay, reduce or eliminate our
research and development programs or commercialization efforts, which could
adversely affect our business prospects.
Off-Balance Sheet Arrangements
We have entered into the Letter Agreements withMacAndrews andForbes Group LLC which, as ofJune 30, 2020 , provide us the right to sell toMacAndrews an additional 1,875,000 shares of our Class A Common Stock at a price of$1.60 per share. Further,MacAndrews has the right (exercisable up to three times) to require us to sell to it an equal number of shares of Class A Common Stock at the same price. As ofJune 30, 2020 , we had received funding of$56.0 million under the Letter Agreements and, in exchange, had issued a total of 31,915,546 shares of our Class A Common Stock. 31 --------------------------------------------------------------------------------
Discussion of Critical Accounting Policies
For a discussion of our critical accounting policies and estimates, please refer to Part II, Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the year endedDecember 31, 2019 . There have been no material changes to our critical accounting policies and estimates in 2020.
Forward-Looking Statements
This quarterly report includes certain forward-looking statements within the meaning of the federal securities laws regarding, among other things, our management's intentions, plans, beliefs, expectations or predictions of future events, which are considered forward-looking statements. You should not place undue reliance on those statements because they are subject to numerous uncertainties and factors relating to our operations and business environment, all of which are difficult to predict and many of which are beyond our control. Forward-looking statements include information concerning our possible or assumed future results of operations, including descriptions of our business strategy. These statements often include words such as "may," "will," "should," "believe," "expect," "outlook", "anticipate," "intend," "plan," "estimate" or similar expressions. These statements are based upon assumptions that we have made in light of our experience in the industry, as well as our perceptions of historical trends, current conditions, expected future developments and other factors that we believe are appropriate under the circumstances. As you read this quarterly report, you should understand that these statements are not guarantees of performance or results. They involve known and unknown risks, uncertainties and assumptions, including those described under the heading "Risk Factors" under Item 1A of Part I in our Annual Report on Form 10-K and under Item 1A of Part II of this Quarterly Report on Form 10-Q. Although we believe that these forward-looking statements are based upon reasonable assumptions, you should be aware that many factors, including those described under the heading "Risk Factors" under Item 1A of Part I in our Annual Report on Form 10-K and under Item 1A of Part II of this Quarterly Report on Form 10-Q, could affect our actual financial results or results of operations and could cause actual results to differ materially from those in the forward-looking statements. Our forward-looking statements made herein are made only as of the date of this quarterly report. We expressly disclaim any intent, obligation or undertaking to update or revise any forward-looking statements made herein to reflect any change in our expectations with regard thereto or any change in events, conditions or circumstances on which any such statements are based. All subsequent written and oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the cautionary statements contained in this quarterly report.
Effect of Recent Accounting Pronouncements
See discussion of recent accounting pronouncements in Note 2, "Summary of Significant Accounting Policies", to the Condensed Consolidated Financial Statements in this Form 10-Q.
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