Viking Therapeutics, Inc. — Q1 2015 Form 10-Q
Reporting period: Three months ended March 31, 2015; financial statements are unaudited. Viking is a clinical-stage biopharmaceutical company developing therapies for metabolic and endocrine disorders. It had no product revenue and relied on Ligand Pharmaceuticals for rights to its drug programs.
Financial results and position
| Metric | Q1 2015 / March 31, 2015 | Prior comparable period / December 31, 2014 |
|---|---|---|
| Revenue | $0 | $0 |
| Research and development expense | $139,000 | $50,000 in Q1 2014 |
| General and administrative expense | $322,000 | $160,000 in Q1 2014 |
| Net loss | $5.71 million; $1.40 per share | $229,000; $0.08 per share in Q1 2014 |
| Cash used in operations | $411,000 | $101,000 in Q1 2014 |
| Cash | $327,000 | $756,000 |
| Total assets | $2.77 million | $3.04 million |
| Total liabilities | $30.61 million | $25.17 million |
| Stockholders’ deficit | $27.84 million | $22.13 million |
There was no meaningful gross margin because the company had no revenue. The quarter’s loss was driven chiefly by a $4.96 million noncash increase in the fair value of accrued license fees owed under the Ligand agreement. The company also recorded $172,000 of debt-discount amortization, $83,000 from remeasurement of its debt conversion feature liability, and $35,000 of interest expense. The license-fee liability was $24.83 million at quarter-end. Convertible notes payable had a carrying value of approximately $1.74 million, in addition to a $1.53 million debt conversion feature liability.
Current liabilities were $27.71 million against current assets of $360,000, indicating a substantial working-capital deficit. The company reported no investing cash flows and no off-balance-sheet arrangements. Cash consisted of bank deposits; management considered interest-rate exposure immaterial.
Changes versus Q1 2014
- Net loss increased from $229,000 to $5.71 million, primarily because the Ligand license-fee liability was established in 2014 and then remeasured at fair value in Q1 2015.
- Operating expenses rose to $461,000 from $210,000. R&D increased by $89,000 and G&A by $162,000.
- Operating cash use increased to $411,000 from $101,000. The much larger reported loss was substantially affected by noncash fair-value and debt-discount charges.
Outlook, financing and material developments
- After quarter-end, Viking completed its IPO and full over-allotment: 3.45 million shares sold at $8 per share. The filing reports $25.39 million of net proceeds after underwriting discounts and commissions but before other offering costs; its use-of-proceeds disclosure reports $22.37 million after estimated offering costs.
- The filing states that the IPO proceeds alleviated substantial doubt about the company’s ability to continue as a going concern. Management expected available cash to fund projected operations for at least 12 months, while warning that additional capital would likely be needed and might not be available on acceptable terms.
- In connection with the IPO, accrued license fees and convertible notes were converted into shares under the applicable agreements. The filing’s pro forma March 31 balance sheet showed cash of $25.72 million and stockholders’ equity of $20.40 million, based on specified IPO-related assumptions.
- Management expected to begin a Phase 2 study of VK5211 in 2015 and complete it in the first half of 2016. It expected to start clinical studies of VK2809 and/or VK0214 for adrenoleukodystrophy in late 2015 or early 2016, subject to ongoing preclinical work, with preliminary results expected in 2016.
- The company expected losses and R&D spending to rise as programs advanced. Key uncertainties include clinical safety and efficacy, trial timing and enrollment, regulatory approval, manufacturing and third-party execution, intellectual-property protection, and access to future financing.
- Ligand’s license agreement is central to the pipeline and includes potential development, regulatory and sales milestones and single-digit royalties. Ligand also held a large shareholding and conversion rights under its note, creating potential influence and related-party considerations.
Investor verification priorities
- Reconcile IPO proceeds: $25.39 million before other offering costs versus $22.37 million after estimated offering costs, and confirm actual cash available after all expenses.
- Review the Ligand license-fee conversion, amended royalty terms, share issuance and remaining note-conversion rights.
- Track actual cash burn against management’s at-least-12-month runway estimate and assess the timing and terms of any additional financing.
- Verify progress, enrollment, safety data and timelines for VK5211 and the VK2809/VK0214 programs; the stated schedules were forward-looking expectations, not guarantees.
- Assess dependence on Ligand-owned intellectual property and the risks of clinical failure, regulatory delays, manufacturing or CRO disruptions, and future dilution.