September 10, 2018 - 1:06pm EST by
2018 2019
Price: 6.68 EPS -1.17 -1.25
Shares Out. (in M): 51 P/E NM NM
Market Cap (in $M): 283 P/FCF NM NM
Net Debt (in $M): -31 EBIT -54 -65
TEV (in $M): 252 TEV/EBIT NM NM
Borrow Cost: Tight 15-50% cost

Sign up for free guest access to view investment idea with a 45 days delay.

  • Heidelberg printer
  • going to zero eventually



VTL has previously been written up by us in 2015.  However, there is now another chance to short the stock as their current Phase 3 trial is due to read out in late September.  Their key technology, an extracorporeal artificial liver called the ELAD system, is a 20 year old technology that they acquired in bankruptcy.  The ELAD System has careened from indication to indication - from FHF (Flare of Viral Hepatitis) to ACLF (Acute-on-Chronic Liver Failure) to the current sAH (Severe Alcoholic Hepatitis) - as they look for weak signals of efficacy in subsets of failed trials to raise capital to run the next next trial.  The current Phase 3 trial (VTL-308) of ELAD vs. standard of care treatment in alcoholic hepatitis is based on a retrospective analysis of the failed 2015 trial. They have carefully selected the ~30% of the population that showed a benefit of the treatment to enroll in their new Phase 3 study. With limited rationale for the treatment and for the selected population and given the high risk in retrospective analysis, we believe the current Phase 3 trial is very likely to fail as well.  As the current Phase 3 trial is the only value driver for the company and current cash expected to run out in 1Q19, we believe the stock has 75%+ downside in the event of trial failure.


Capital Structure

The company ended the 2Q 2018 with $31.1M of cash in the bank.  With a fully diluted share count of 50.9M they had $0.61/share of cash at the end of June.  



They do currently have a shelf outstanding and could execute an "at-the-market" sales agreement they have with Cantor Fitzgerald (another sign of a quality company) to raise $60M.  As of July 31st they have not exercise any of the "at-the-market" offering, but it is quite possible that they have done so since then.


We currently have an effective shelf registration statement on Form S-3 on file with the SEC, which expires in June 2021. The shelf registration statement currently permits the offering, issuance and sale by us of up to an aggregate offering price of $200.0 million of common stock, preferred stock, warrants, debt securities or units in one or more offerings and in any combination, of which $60.0 million may be offered, issued and sold under an “at-the-market” sales agreement with Cantor Fitzgerald & Co. In the event of positive topline results from VTL-308, we plan to raise additional capital.

VTL-308 Analysis


The ELAD system runs blood through cartridges of C3A cells in attempt to replicate certain liver functions


VTL has an artificial liver called the ELAD system that they are currently testing in a Phase 3 trial (the VTL-308 trial).  The previous write-up has more details on the system, but underlying idea is that you run people’s blood thru a system where it has the chance to pass thru 4 cartridges of C3A cells, which may help mimic certain liver functions.  



VTL-308 trial is likely to fail as it is based on a very elaborate and tortured retrospective subgroup analysis of the failed VTI-208 Phase 3 study


The VTL-308 Phase 3 trial is a 151 patient randomized, open-label trial testing ELAD vs. standard of care in patients with severe alcoholic hepatitis..  The primary endpoint of the study is overall survival. Enrollment began in Q2 2016 and the study finished enrollment in March of this year. The trial protocol mandates that all patients be followed for at least 91 days and there be at least 55 deaths before the overall survival is analyzed.  In early 2018 independent statisticians confirmed that the blinded event rate was sufficient with the targeted 150 patient enrollment. Average follow up period for the patients should be approximately 1 year given public disclosures of 67 patients enrolled by their 1Q17 call and 95 patients by the 2Q17 call.  



In March 2018 VTL completed enrollment in their Phase 3 clinical trial, VTL-308, with 151 severe alcoholic hepatitis patients randomized to receive ELAD or control.  This trial is based on a retrospective analysis of the failed VTI-208 trial.


The VTI-208 trial which failed was itself a retrospective analysis of a failed Phase 2 trial (VTI-206) - highlighting the inherent risk in this data mining and subgroup analysis.  The retrospective analysis are particularly dangerous when the overall trial is negative - as was the case with the VTI-206 study and the VTI-208 study which is the basis for the VTL-308 study.  


The results of the VTI-208 trial were completely negative.  The hazard ratio (HR) for survival was 1.027 (meaning that you were slightly more likely to die on the ELAD arm than on the control arm).