Viking Therapeutics, Inc. — Q2 2016 Form 10-Q
Reporting period: Three and six months ended June 30, 2016; filed August 11, 2016. Interim financial statements are unaudited.
Business context
Viking is a clinical-stage biopharmaceutical company developing therapies for metabolic and endocrine disorders. It reported no revenue. Its programs included VK5211, in Phase 2 for rehabilitation after hip fracture; VK2809, entering Phase 2 for hypercholesterolemia and fatty liver disease; and VK0214, in preclinical development for X-linked adrenoleukodystrophy. The company licenses its portfolio from Ligand Pharmaceuticals.
Financial results and liquidity
| Metric | Q2 2016 | Q2 2015 | Six months 2016 | Six months 2015 |
|---|---|---|---|---|
| Revenue | $0 | $0 | $0 | $0 |
| Research and development expense | $2.37 million | $1.10 million | $4.25 million | $1.24 million |
| General and administrative expense | $1.21 million | $1.53 million | $2.60 million | $1.85 million |
| Operating loss | $(3.58) million | $(2.63) million | $(6.85) million | $(3.09) million |
| Net loss | $(3.69) million | $(7.87) million | $(7.28) million | $(13.58) million |
| Basic and diluted loss per share | $(0.22) | $(1.07) | $(0.56) | $(2.38) |
As of June 30, cash and cash equivalents were $5.16 million and short-term investments were $12.04 million, totaling $17.20 million in cash and investments. Total assets were $18.55 million; total liabilities were $5.76 million; stockholders’ equity was $12.79 million. The company had an accumulated deficit of $52.83 million. No meaningful revenue-based margin measure is available.
For the six months, operating cash use was $5.95 million, investing activities provided $1.14 million net, and financing activities provided $9.20 million. Cash increased $4.39 million from year-end 2015 to $5.16 million. The filing reports the Ligand convertible note at a net carrying value of $2.38 million, classified as current; it also has a $1.29 million current debt-conversion-feature liability. The note was amended to a 2.5% interest rate and maturity in 2017. Under specified repayment circumstances, the remaining balance may be subject to a 200% repayment amount.
Material changes versus comparable periods
- Q2 R&D expense increased 115% year over year, reflecting greater clinical-trial, manufacturing, and preclinical activity. Six-month R&D expense increased 243%.
- Q2 G&A expense declined 21%, mainly because stock-based compensation was lower; six-month G&A increased 41%, reflecting salaries, insurance, professional fees, and public-company costs.
- Net loss narrowed substantially versus 2015, but the comparison was affected by a large 2015 non-cash charge for the fair-value change in accrued Ligand license fees. Operating loss increased in both the quarter and six-month period, and six-month operating cash use rose from $2.03 million to $5.95 million.
- In April, the company completed a stock-and-warrant offering and underwriter over-allotment, receiving approximately $9.04 million net in total. It also repaid $1.5 million of the Ligand obligation: $300,000 in cash and $1.2 million in shares and a warrant. Shares outstanding increased to 19.28 million at July 31, 2016 from 9.68 million at December 31, 2015.
Outlook, risks, and unusual items
- Management said available capital was insufficient to fund operating and capital requirements for the next 12 months under its current plan unless additional capital is raised. Failure to obtain funding could require delaying, reducing, or discontinuing development or operations. The filing also notes that the 2015 audit report expressed substantial doubt about the company’s ability to continue as a going concern.
- The company expected continued and increasing losses, including higher R&D costs as it continued VK5211 Phase 2, initiated VK2809 Phase 2, and advanced other programs. It expected to complete the VK5211 and VK2809 trials in the first half of 2017; it expected to pursue an IND for VK0214 in 2016, subject to preclinical work.
- A June 2016 equity distribution agreement permits sales, subject to Form S-3 limits, of up to 3,748,726 shares through Maxim Group. The registration statement became effective July 26, 2016. Future equity fundraising may dilute existing holders.
- Key risks include clinical and regulatory failure or delay, dependence on third-party manufacturers and CROs, reliance on Ligand-licensed intellectual property, financing uncertainty, and potential dilution. Ligand held approximately 37.6% of outstanding shares as of July 31, 2016 and is also the company’s lender and licensor.
- The company disclosed no material legal proceedings, no off-balance-sheet arrangements, and no subsequent events requiring financial-statement recognition or disclosure. Management concluded disclosure controls were effective; no material change in internal control was reported for the quarter.
Important facts for investors to verify
- Current cash runway, expected quarterly cash burn, and timing and terms of any additional financing or ATM share sales.
- VK5211 and VK2809 trial enrollment, milestones, completion timing, and any changes to the stated first-half 2017 timelines.
- Ligand note repayment terms, including the potential 200% repayment amount, security interest, and effects of any repayment in shares or warrants.
- Potential dilution from the 8.625 million offering warrants, Ligand’s 960,000-share warrant, the ATM facility, and outstanding equity awards.
- Progress on VK0214 preclinical work and the planned IND path, as well as the company’s continuing reliance on Ligand for its licensed programs.