Viking Therapeutics, Inc. — Q3 2015 Form 10-Q
Reporting period: Three and nine months ended September 30, 2015. Amounts are in U.S. dollars. Viking is a clinical-stage biopharmaceutical company developing therapies for metabolic and endocrine disorders. It reported no revenue and remains dependent on financing to advance its pipeline.
Financial performance and position
| Metric | Q3 2015 | Q3 2014 | Nine months 2015 | Nine months 2014 |
|---|---|---|---|---|
| Revenue | $0 | $0 | $0 | $0 |
| Research and development expense | $2.508 million | $0.789 million | $3.747 million | $22.080 million |
| General and administrative expense | $1.781 million | $0.360 million | $3.629 million | $1.034 million |
| Operating loss | $4.288 million | $1.149 million | $7.376 million | $23.114 million |
| Net loss | $4.737 million | $0.262 million | $18.313 million | $23.274 million |
| Basic and diluted loss per share | $0.53 | $0.06 | $2.69 | $5.84 |
Gross and operating margins are not meaningful because the company had no revenue. Q3 2015 comprehensive loss was $4.729 million; nine-month comprehensive loss was $18.318 million.
- Liquidity at September 30: Cash and cash equivalents of $2.140 million and short-term investments of $15.350 million; management separately reported total cash and investments of $17.490 million. Current assets were $18.932 million versus current liabilities of $5.723 million, or approximately $13.210 million of working capital.
- Cash flows, nine months: $5.432 million used in operating activities, $15.426 million used in investing activities (primarily purchases of short-term investments), and $22.242 million provided by financing activities. Cash increased by $1.384 million to $2.140 million.
- Debt and other obligations: The balance sheet reported $1.911 million of current convertible notes, net of discount, $152,000 of accrued interest, and a $2.154 million current debt-conversion-feature liability. The Ligand note’s principal and interest totaled $2.652 million at September 30; Ligand could elect conversion under specified terms. There was no long-term convertible-note balance at quarter-end.
- Other balance-sheet items: Total assets were $19.012 million and stockholders’ equity was $13.271 million, compared with a $22.129 million stockholders’ deficit at December 31, 2014. Accumulated deficit was $40.454 million.
Material changes versus comparable periods
- Q3 operating expenses rose to $4.288 million from $1.149 million, as R&D and G&A increased with clinical manufacturing, trial activity, staffing, stock compensation, insurance, and public-company costs. The company reported Q3 net loss of $4.737 million versus $262,000 a year earlier.
- Nine-month R&D expense fell 83% year over year, chiefly because 2014 included $21.688 million of Ligand license-related expense. This masks increases in ongoing clinical, manufacturing, personnel, and stock-compensation costs.
- Nine-month net loss improved by $4.961 million, but included a $9.382 million non-cash expense from the fair-value increase in accrued license fees. The license fees were converted into shares at the May 2015 IPO, so the related liability and subsequent fair-value remeasurement ended.
- In May, Viking completed its IPO and full over-allotment, selling 3.45 million shares at $8.00 per share. The filing reports $27.6 million of gross proceeds and $22.373 million of net proceeds after underwriting discounts and estimated offering costs. It also issued shares to Ligand and Metabasis in settlement of accrued license fees and converted notes into common stock.
- G&A rose substantially as the company expanded operations and incurred costs as a newly public company. Stock-based compensation was $2.074 million for the first nine months of 2015, versus $5,000 in the prior-year period.
Outlook, risks, and notable items
- Management said IPO proceeds provided sufficient resources for projected operating needs for at least the next 12 months. It nevertheless expected continued and increasing losses and anticipated needing additional capital; financing may be unavailable or dilutive, and could require delaying, reducing, or licensing development programs.
- VK5211 entered a Phase 2 trial in October 2015 for recovery after hip-fracture surgery; Viking expected completion in the second half of 2016. It expected to start a Phase 2 VK2809 trial in Q4 2015 and complete it in the second half of 2016.
- For the ALD program, Viking planned further animal studies in Q4 2015 and, subject to those results, expected to file an IND in 2016. The pipeline also included VK0214, VK0612, and earlier-stage programs.
- Key risks include clinical and regulatory uncertainty, dependence on third-party manufacturers and research providers, reliance on Ligand-licensed intellectual property, and the need for further financing. Ligand held approximately 49.4% of outstanding common stock as of November 2, 2015; executives, directors, significant holders, and affiliates collectively held approximately 74.07%.
- The company said it had no material legal proceedings and no off-balance-sheet arrangements. Management concluded disclosure controls were effective and reported no material change in internal control during the quarter. The filing notes a prior-year material weakness in account reconciliations that management said it had remediated.
- Although prior audit reports had expressed substantial doubt about going concern, management stated the IPO proceeds alleviated doubt regarding the company’s ability to continue as a going concern over the next 12 months.
Important facts for investors to verify
- Whether cash, investments, and operating burn support the clinical timeline and management’s stated 12-month liquidity outlook, and when additional financing may be required.
- VK5211 and VK2809 trial initiation, enrollment, safety, efficacy, and completion progress against the stated expectations.
- The terms and timing of Ligand’s note conversion option, potential issuance of approximately 663,090 additional shares, and the full financial and royalty obligations under the Ligand license agreements.
- The filing reports 9,783,312 shares issued and outstanding at September 30, but 9,678,312 shares outstanding as of November 2. Confirm the post-quarter share count and the effect of subsequent forfeitures or other changes.
- How much of the reported nine-month loss reflects recurring operating costs versus non-cash license-fee and debt fair-value items; review operating cash use alongside expense growth.