Viking Therapeutics, Inc. — Q3 2016 Form 10-Q
Reporting period: Three and nine months ended September 30, 2016. The interim financial statements are unaudited. Viking is a clinical-stage biopharmaceutical company with no product revenue, developing therapies for metabolic and endocrine disorders.
Business context and outlook
- VK5211 and VK2809 were in Phase 2 trials; management expected both trials to complete in the first half of 2017. VK0214 was in preclinical in-vivo studies for X-linked adrenoleukodystrophy, with IND-directed work anticipated after those studies.
- Viking licensed worldwide rights to five drug-candidate programs from Ligand Pharmaceuticals. The company reported no revenue since inception and expects continued losses as it advances its programs.
Key financial metrics
| Metric | Q3 2016 | Q3 2015 | Nine months 2016 | Nine months 2015 |
|---|---|---|---|---|
| Revenue | $0 | $0 | $0 | $0 |
| Research and development expense | $2.10 million | $2.51 million | $6.35 million | $3.75 million |
| General and administrative expense | $1.16 million | $1.78 million | $3.76 million | $3.63 million |
| Operating loss | $(3.26) million | $(4.29) million | $(10.11) million | $(7.38) million |
| Net loss | $(3.81) million | $(4.74) million | $(11.09) million | $(18.31) million |
| Net loss per share, basic and diluted | $(0.20) | $(0.53) | $(0.74) | $(2.69) |
- Cash flow, nine months: Operating activities used $8.61 million, investing activities provided $1.58 million, and financing activities provided $9.31 million. Cash and cash equivalents increased by $2.29 million to $3.05 million.
- Liquidity at September 30: Cash and cash equivalents were $3.05 million and short-term investments were $11.56 million, totaling $14.62 million. Current assets were $15.62 million; current liabilities were $6.08 million. Accumulated deficit was $56.63 million.
- Debt: The Ligand convertible note was reported as a current liability at a net carrying amount of $2.83 million, including a $1.11 million discount; a separate current debt-conversion-feature liability was $1.35 million. The note is secured by company assets. Under its terms, a demanded or elected full repayment after maturity may be 200% of outstanding principal and accrued interest.
- Margins: Not applicable because Viking reported no revenue.
Material changes versus prior comparable periods
- Q3 operating expenses and net loss declined year over year. Management attributed lower quarterly R&D primarily to reduced clinical manufacturing, salaries and stock compensation, partly offset by more trial and preclinical activity. Lower G&A reflected reduced salaries, stock compensation and prior-year office equipment costs.
- For the nine-month period, R&D increased 69.5% as VK5211 and VK2809 clinical-trial activity and VK0214 preclinical work expanded. G&A increased 3.5%, including higher professional fees, insurance and public-company costs.
- Nine-month net loss improved substantially year over year, while operating loss worsened. The comparison was affected by a $9.38 million 2015 expense from remeasurement of accrued Ligand license fees; that item did not recur in 2016. In 2016, noncash debt-discount amortization was $1.36 million.
- Operating cash use rose from $5.43 million to $8.61 million year over year. Financing proceeds included the April 2016 stock-and-warrant offering and Aspire Capital’s initial $0.50 million stock purchase.
Guidance, risks and unusual items
- Funding risk: Management said available capital was insufficient to fund operating and capital requirements for the next 12 months unless additional capital is raised. The filing warns that failure to obtain funding could force delays, reductions or discontinuation of development. The financial statements include no adjustments for the outcome of this uncertainty.
- Potential financing and dilution: Aspire Capital committed to purchase up to $12.5 million of stock over 30 months, subject to agreement terms and limitations. The Maxim equity distribution agreement permits sales of up to 3,748,726 shares, subject to Form S-3 limits. After quarter-end, 274,515 additional shares were sold under the agreements for $370,491 net proceeds. The April offering also issued warrants, and future equity sales or exercises may dilute shareholders.
- Clinical and business risks: Candidates remain experimental and require further clinical development and regulatory approval; results, timing, safety, enrollment, manufacturing and regulatory outcomes are uncertain. Viking relies on third parties for manufacturing and trial execution and is substantially dependent on Ligand-licensed intellectual property.
- Other items: The company disclosed no material legal proceedings and no off-balance-sheet arrangements. Management concluded disclosure controls were effective and reported no material change in internal control over financial reporting during the quarter. The stock closed at $1.07 on October 31, 2016, near Nasdaq’s $1.00 minimum bid-price threshold.
Most important facts for investors to verify
- Current cash runway, expected spending and the timing, amount and terms of any additional financing.
- Enrollment, safety, progress and expected completion timing for the VK5211 and VK2809 Phase 2 trials, plus VK0214 preclinical results and IND plans.
- Ligand note balance, repayment and conversion provisions, security interest, and any resulting share issuance or dilution.
- Remaining availability and restrictions under the Aspire Capital and Maxim agreements, including subsequent sales and outstanding warrants.
- Potential effects of Ligand’s ownership, licensing terms and milestones on control, development rights and future economics.