Viking Therapeutics, Inc. — Q2 2015 Form 10-Q
Reporting period: Three and six months ended June 30, 2015. Viking is a clinical-stage biopharmaceutical company developing therapies for metabolic and endocrine disorders. The interim financial statements are unaudited.
Financial results and liquidity
| Metric | Q2 2015 | Six months 2015 |
|---|---|---|
| Revenue | $0 | $0 |
| Research and development expense | $1.10 million | $1.24 million |
| General and administrative expense | $1.53 million | $1.85 million |
| Operating loss | $2.63 million | $3.09 million |
| Net loss | $7.87 million | $13.58 million |
| Basic and diluted loss per share | $1.07 | $2.38 |
| Cash used in operating activities | — | $2.03 million |
At June 30, cash and cash equivalents were $9.50 million and short-term investments were $12.16 million, totaling $21.66 million in cash and investments. Current liabilities were $4.88 million, including $1.67 million of convertible notes payable, net of discount, and a $1.96 million debt conversion-feature liability. There were no long-term liabilities reported. Stockholders’ equity was $17.39 million. Gross margin is not applicable because the company had no revenue.
Cash used in investing activities was $12.17 million, primarily reflecting investment of IPO proceeds. Cash provided by financing activities was $22.95 million, mainly from the IPO. The filing reports $27.60 million of gross IPO proceeds and $22.37 million of net proceeds after underwriting discounts and estimated offering costs. The company stated it expected its available funds to cover projected operating requirements for at least 12 months.
Changes versus prior comparable periods
- Q2 2015 net loss narrowed to $7.87 million from $22.78 million in Q2 2014; first-half net loss narrowed to $13.58 million from $23.01 million.
- Research and development expense declined 94.8% in Q2 and 94.2% for the first half, chiefly because the prior-year periods included a $21.17 million license-related expense when Viking entered its Ligand agreement.
- General and administrative expense rose to $1.53 million in Q2 from $0.51 million, largely reflecting IPO-related stock compensation and higher payroll and public-company insurance costs.
- Other expenses increased to $5.24 million in Q2 and $10.49 million in the first half, primarily from non-cash fair-value remeasurement of Ligand-related accrued license fees and the convertible-note conversion feature. The license fees were converted into equity at the IPO, so Viking said related fair-value changes would no longer be recorded.
- The May 2015 IPO and full over-allotment materially improved liquidity. Shares outstanding were 9,783,312 at June 30, versus 6,000,000 at December 31, 2014.
Business outlook, risks and notable items
- Viking said it expected to begin a Phase 2 study of VK5211 for rehabilitation after hip-fracture surgery in 2015, with completion expected in the second half of 2016. It expected to complete the planned Phase 2 study of VK2809 in 2016.
- For VK2809 and VK0214 in adrenoleukodystrophy, the company planned additional animal studies in the second half of 2015 and, subject to those results, expected to initiate clinical studies in 2016. These are management expectations, not assurances.
- Management anticipated increasing R&D spending and continuing losses as clinical and preclinical programs advance. Viking expected to require additional capital to fund operations and trials; financing might not be available on acceptable terms or at all.
- Viking’s five-candidate portfolio is licensed from Ligand. The company disclosed substantial dependence on the license, potential milestone obligations of up to approximately $1.54 billion, and single-digit royalties on future worldwide net product sales.
- Ligand held approximately 48.9% of outstanding shares as of August 10, 2015. Under specified events, Ligand could elect to convert its note; the filing cited approximately 655,277 additional shares based on $2.62 million of principal and interest outstanding at June 30. The note also has conversion and cash-payment provisions described in the filing.
- The company reported no material legal proceedings and no off-balance-sheet arrangements. A July 2015 sublease for its headquarters began August 1, with monthly base rent of $19,737, subject to annual increases.
- Management said IPO proceeds addressed the prior liquidity concern for the next 12 months. The filing also notes that the auditor had expressed substantial doubt about going concern in earlier annual reports, before the IPO financing.
- Principal risks include clinical or regulatory failure, trial delays, dependence on third-party manufacturers and CROs, financing and dilution risk, reliance on Ligand and licensed intellectual property, competition, and potential adverse drug effects. Disclosure controls were assessed as effective at June 30; management reported no material change in internal control during the quarter.
Important facts for investors to verify
- Progress against the stated VK5211, VK2809 and adrenoleukodystrophy development timelines, and any changes to trial plans or results.
- Cash use and investment balances in subsequent filings, including whether the stated 12-month runway remains sufficient as development spending rises.
- Ligand license economics, milestone and royalty obligations, and the terms and potential dilution associated with the Ligand Note.
- Share ownership, lock-up expirations, equity compensation and other potential sources of dilution.
- Whether additional financing or collaborations are secured on terms that support planned development without material delays.