Business context and reporting period
Viking Therapeutics, Inc. is a clinical-stage biopharmaceutical company developing therapies for metabolic and endocrine disorders. This unaudited Form 10-Q covers the three months ended March 31, 2016, with comparisons to the first quarter of 2015. The company reported no revenue and has not generated revenue since inception.
Key programs include VK5211, in Phase 2 for recovery after hip-fracture surgery; VK2809, planned for Phase 2 development in hypercholesterolemia and fatty liver disease; and VK0214, in preclinical development for X-linked adrenoleukodystrophy. The company licenses its drug-candidate portfolio from Ligand Pharmaceuticals.
Financial performance and position
| Metric | Q1 2016 | Q1 2015 |
|---|---|---|
| Revenue | $0 | $0 |
| Research and development expense | $1.88 million | $0.14 million |
| General and administrative expense | $1.39 million | $0.32 million |
| Operating loss | $3.27 million | $0.46 million |
| Other expense, net | $0.32 million | $5.25 million |
| Net loss | $3.59 million | $5.71 million |
| Basic and diluted loss per share | $0.40 | $1.40 |
| Net cash used in operating activities | $2.73 million | $0.41 million |
Margins are not meaningful because the company had no revenue. The lower year-over-year net loss principally reflects the absence of the prior-year $4.96 million charge for changes in the fair value of accrued Ligand license fees; operating expenses increased substantially.
At March 31, 2016, cash and cash equivalents were $3.96 million and short-term investments were $7.29 million, totaling $11.25 million. Current assets were $12.16 million; current liabilities were $1.92 million. Total liabilities were $6.99 million, including convertible notes reported net of discount at $3.14 million, accrued interest of $0.20 million, and a $1.70 million debt-conversion-feature liability. Accumulated deficit was $49.13 million.
Investing activities provided $5.97 million, primarily from investment sales and maturities; this was not operating cash generation. Cash used in financing activities was $0.06 million. There were no off-balance-sheet arrangements reported.
Material changes and financing
- R&D expense increased 1,250.8% to $1.88 million, driven by clinical trial activity, manufacturing, staffing, consulting and stock-based compensation.
- G&A expense increased 331.7% to $1.39 million, reflecting higher stock compensation, salaries, insurance, professional fees and public-company costs.
- In January 2016, the Ligand note’s interest rate was reduced from 5% to 2.5% and its maturity extended to May 21, 2017. A qualifying financing triggers a $1.5 million repayment obligation, with specified cash and equity components.
- After quarter-end, the company completed an offering of 7.5 million shares and warrants to buy 7.5 million shares, receiving $9.39 million gross proceeds. It later sold 1.125 million additional shares for $1.40 million gross proceeds and issued warrants for another 1.125 million shares. The filing reports pro forma March 31 cash, cash equivalents and investments of $20.30 million after giving effect to the offering and Ligand repayment.
- The Ligand repayment included $300,000 in cash and $1.2 million settled through 960,000 shares and a warrant for 960,000 shares. The offering and related issuances materially increased potential share dilution.
Outlook, risks and unusual items
- Management said April offering proceeds were expected to fund projected operating requirements for at least 12 months from the filing date. The company nevertheless expects continuing losses, increased R&D spending and a need for additional capital to fund development and planned trials.
- VK5211 enrollment was expected to finish in the second half of 2016, with the Phase 2 trial expected to complete in Q1 2017. VK2809’s planned Phase 2 start was delayed after the FDA requested information about toxicity of certain metabolites; management expected to initiate it in Q2 2016. VK0214 IND-directed work was expected in 2016, subject to preclinical progress.
- Development and financing risks include trial delays or unsuccessful results, regulatory approval uncertainty, reliance on third-party manufacturers and research providers, dependence on Ligand-licensed intellectual property, and the possibility that additional financing may be unavailable or dilutive.
- The 2015 audit report expressed substantial doubt about the company’s ability to continue as a going concern. Management stated that the subsequent April 2016 financing changed its liquidity outlook, supporting its estimate of at least 12 months of funding; that estimate remains dependent on its operating plan and cash needs.
- The Level 3 fair value of the debt conversion feature fell from $2.37 million at year-end to $1.70 million at March 31, 2016, reflecting debt modification and fair-value changes. The company reported no material legal proceedings, and management concluded disclosure controls were effective as of quarter-end.
Important facts for investors to verify
- Whether actual cash, investment balances and operating spending support the stated 12-month runway, including net offering proceeds after expenses.
- Progress against VK5211 enrollment and completion timelines, and whether VK2809’s FDA-requested information has been resolved and its trial initiated.
- The terms, remaining balance and potential repayment, conversion, collateral and covenant effects of the Ligand note.
- Fully diluted share count and warrant overhang following the offering, over-allotment and Ligand debt settlement.
- Clinical, regulatory, manufacturing and licensing developments that could delay programs or increase capital requirements.