June 29, 2015 - 1:56am EST by
2015 2016
Price: 20.14 EPS N/A N/A
Shares Out. (in M): 24 P/E N/A N/A
Market Cap (in $M): 483 P/FCF N/A N/A
Net Debt (in $M): -90 EBIT 0 0
TEV (in $M): 393 TEV/EBIT N/A N/A
Borrow Cost: Available 0-15% cost

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

  • Biotech
  • Medical Devices
  • FDA




We believe that VTL offers the chance to short a Phase 3 trial that has shown no evidence of efficacy in prior studies.  This is a device that has been in development for almost 2 decades, undergone bankruptcy due to repeated lack of efficacy in clinical trials, and now resurrected in a Hail Mary attempt for a Phase 3 in a very difficult to treat patient population.  Their SEC filings specifically warn that the FDA specifically noted that there was no evidence of efficacy in Phase 2 to warrant being taken into Phase 3.  With the stock trading at $20 and under $4/share in cash there is 50-75% downside to the stock when the Phase 3 trial fails in the 3Q15.




Vital Therapies, Inc. was formed in May 2003 to acquire the assets of VitaGen (formerly Hepatix) in a bankruptcy proceeding. The predecessor companies developed the ELAD System, completing two pilot trials in acute liver failure and two randomized, controlled Phase 1 and Phase 2 trials in FHF, but failed to attract funds sufficient to continue development of the system. Beginning in June 2003, VTL refocused the company to pursue regulatory approval and commercialize the ELAD System in China. In 2007, VTL completed a pivotal trial in acute liver failure in subjects with viral hepatitis in China, and we submitted an application for marketing in China. However, the application is still under review in China and approval is dependent on garnering US approval for the ELAD system.


In April 2014, VTL sold 5.175M shares at $12 a share and raised $62.1M in its IPO ($51.9M net).  Bank of America and Credit Suisse acted as joint book-running managers for the offering.  VTL sold another 2.05M shares at $17.50 per share for net proceeds of $32.8.


ELAD System

VTL's main and only value driver is the ELAD System, an extracorporeal  artificial liver  which is meant to help bridge the gap to transplant.  The ELAD system draws blood from the patient via a central venous line.  That line is then passed into a bedside unit where plasma ultrafiltrate is isolated by a generator.  The plasma passes through 4 cartridges of the C3A cells to allow for transfers of toxins from the plasma and metabolites into the plasma - this is the part meant to mimic the liver function.  This plasma is then filtered and recombined with the blood cells and then returned to the patient.  This is a continuous treatment for 5 days.




Here is a picture of the ELAD system




The ELAD system uses a C3A cell lines for the therapy.  The C3A cell line is derived from human liver cells.  We do note that C3A cell lines are commercially available for research purposes, however VTL does have a proprietary version of this cell line that they use for the ELAD system.


While it is beneficial to have certain human liver cell lines provide some of the functions of the liver, these cell lines naturally are not able to replicate the liver fully.  For example, the urea cycle is non-functional in C3A cells,  cannot provide ammonia detoxification in a bioartificial liver system.  (


Liver Failure

The liver performs a wide range of necessary functions including detoxification of metabolites, protein synthesis and other bio-chemicals necessary for digestion.  In the case of a liver failure, the only treatment shown to improve survival is a liver transplant.  Due to the various functions performed by the liver, it is very difficult to fully replicate all of them through an artificial treatment or system.


Alochol-Induced Liver Decompensation (AILD) is a form of liver failure whose immediate preceding event was ingestion of alcohol.  AILD can occur in patients with or without underlying liver disease.  For patients severe toxic liver damage caused by binge drinking it is known as Acute Alcoholic Hepatitis (AAH).  For patients with chronic disease due to another form of liver disease such as viral hepatitis, and then precipitated by alcohol intake, it is referred to as non-AAH.  There is currently no effective treatment for liver failure except for liver transplant.


ELAD Clinical Development


There are 3 ongoing clinical trials involving the ELAD system.  VIT-208 is the pivotal Phase 3 trial that will read out in the 3Q this year.


Here is a table of the clinical trials for the ELAD system.


Source: SEC Filings &



The current Phase 3 development program is based on the results of the VTI-206 Phase 2 study.


In this P2, 62 patients were randomized with 29 assigned to ELAD and 33 to control.  The overall results were negative with 11 (37.9%) patients alive in the ELAD group vs. 13 (39.4%) in the control arm according to analysis that considers all patients randomized.




In January 2011, the Data Safety and Monitoring Board asked that the company discontinue the non-AAH cohort since there was no possibility of any treatment benefit in this subset.  Thus VTL focused on the AAH subset.  There were 37 patients enrolled in the AAH subset.  However, VTL excluded 8 of them to examine a PP analysis.  This while a pre-defined analysis is not the standard way that data would be presented (it would be either all patients randomized, ITT, or modified ITT, mITT).   As you can see below the dropping of 2 patients from the denominator in the ELAD group allowed the OS survival to look better.





Based on this heavily mined analysis, they were able to show a marginal trend towards benefit with a p-value of 0.27.  (Note the modified Y-axis in the chart below to highlight the slight trend in survival improvement).