Viking Therapeutics, Inc. (VKTX) Q3 2016 Earnings Report, Transcript and Summary

Good afternoon, and welcome to the Viking Therapeutics Third Quarter 2016 Conference Call. All participants will be in a listen-only mode. [Operator Instructions] I would now like to turn the conference over to Stephanie Diaz. Please go ahead.

Hello and thank you all for participating in today's call. Joining me today is Brian Lian, Viking's President and CEO and Michael Morneau, our Chief Financial Officer. Before we begin I'd like to caution that comments made during this conference call today, November 10, 2016 will contain forward-looking statements within the meaning of the Securities Act of 1933 concerning the current beliefs of the company, which involves a number of assumptions, risks and uncertainties. Actual results could differ from these statements and the company undertakes no obligation to revise or update any statements made today. I encourage you to review all the company's filings with the Securities and Exchange Commission concerning these and other matters. I'll now turn the call over to Brian Lian, for his initial comments. Brian?

Thanks, Stephanie. And thanks to everyone for participating on the call as well as online. I would like to welcome you all to Viking's inaugural earnings call. We chose to hold our first call today to give us an opportunity to highlight recent progress and developments related to our pipeline programs and discuss any questions related to our operations. Moving forward, we intend to host these types of calls as needed based on recent corporate developments and not necessarily in conjunction with each earnings announcements. Rather, we plan to reserve conference calls to discuss our most important achievements and milestones. It's our hope that this policy will allow Viking to maintain focus on our development programs while updating investment community as warranted. We will begin today's update with a review of our third quarter financial results, after which, I will provide an update of our key corporate developments. I'll now turn the call over to Mike Morneau, Viking's Chief Financial Officer. Mike?

Thanks Brian. In conjunction with my comments I'd like to recommend that participants referred to Viking’s 10-Q filing with the Securities and Exchange Commission which we expect to file tomorrow for additional details. I’ll now go over our financial results for the third quarter of 2016. Our research and development expenses for the three months ended September 30, 2016 were $2.1 million compared to $2.5 million for the same period in 2015. This decrease was primarily due to decreased clinical manufacturing for our drug candidates offset by an increase in activities related to our ongoing VK5211 Phase 2 clinical trial and commencement of our VK2809 Phase 2 clinical trial. Our third quarter 2016, general and administrative expenses decreased to $1.2 million from $1.8 million for the same period in 2015. This decrease was primarily due to a decrease in payroll and stock-based compensation related expenses. For the three months ended September 30, 2016, Viking reported a net loss of $3.8 million, or $0.20 per share, compared to a net loss of $4.7 million, or $0.53 per share, in the corresponding period in 2015. The decrease in net loss for the three months ended September 30, 2016 was primarily due to the decreases in general and administrative expenses and research and development expenses as previously mentioned. That concludes the third quarter financial review, and I’ll now go over the financial results for the first nine months of 2016. Our research and development expenses for the nine months ended September 30, 2016 were $6.4 million compared to $3.7 million for the same period in 2015. This increase was primarily due to increased activities related to our ongoing VK5211 Phase 2 clinical trial and commencement of our VK2809 Phase 2 clinical trial. Our general and administrative expenses for the nine months ended September 30, 2016 increased to $3.8 million compared to $3.6 million for the same period in 2015. This increase was primarily due to increased costs associated with being a publicly traded company following the closing of the Viking’s initial public offering in May of 2015. For the nine months ended September 30, 2016, Viking reported a net loss of $11.1 million, or $0.74 per share, compared to a net loss of $18.3 million, or $2.69 per share, in the corresponding period in 2015. The decrease in net loss for the nine months ended September 30, 2016 was primarily due to the change in fair value of accrued license fees expense of $9.4 million in 2015 with no comparable expense in 2016, offset by an increase in research and development and general and administrative expenses. Looking in our balance sheet at September 30, 2016, Viking held cash, cash equivalents and investments totaling approximately $14.6 million. As of October 31, 2016, Viking had 20,170,264 shares of common stock outstanding. This concludes our financial review. And I’ll now turn the call back over to Brian.

Thanks Mike. I'd now like to give an overview of the progress we’ve made here at Viking in 2016. I’ll first discuss our two new lead programs. VK5211 in hip fracture and VK2809 for hypercholesterolemia and nonalcoholic fatty liver disease. VK5211 is a novel orally available non-steroidal small molecule selective androgen receptor modulator or SARM, which has been shown to have a stimulatory effect on lean body mass and bone mineral density, and may offer significant benefits to patients recovering from hip fracture surgery. Patients who have a suffered a hip fracture are known to lose bone muscle at accelerated rates placing them at increase risk of further morbidity refracture and prolonged disability. VK5211’s preliminary profile suggests robust anabolic effects on bone and muscle, potentially addressing important unmet medical needs in this population. In 2015, we initiated a Phase 2 clinical trial for VK5211 in patients recovering from hip fracture surgery. This trial is a randomized, double-blind, placebo-controlled, parallel group international study designed to evaluate the efficacy, safety and tolerability of VK5211 in up to 120 patients who have recently suffered a hip fracture surgery. Patients are being randomized to receive VK5211 doses of 0.5 mg, 1.0 milligram, 2.0 milligrams, or placebo once daily for 12 weeks. The study's primary endpoint will evaluate the effects of VK5211 on lean body mass after 12 weeks of treatment. Secondary and exploratory objectives include assessments of functional performance, quality-of-life, and activities of daily living, as well as safety, tolerability and pharmacokinetics. As of today, we have opened all planned US site and are continuing on track to open our plan total of 18 sites at selected European fracture centers. We believe this trial is important because the results may offer hope to the significant number of patients each year who suffer from the debilitating effects of hip fracture. In addition, as this is the first clinical trial we initiated as the company, it represents an important milestone in the company's history. We currently expect the study to be completed in the second quarter of 2017 and we look forward to keeping you updated on our progress. Another important milestone for the company relates to our VK2809 program. VK2809 is a novel orally available small molecule thyroid receptor agonist that possesses selectivity for liver tissue as well as the beta receptor subtype. We recently announced that dosing has commenced in our Phase 2 clinical trial of VK2809 in patients with primary hypercholesterolemia and nonalcoholic fatty liver disease. The Phase 2 trial is a randomized, double-blind, placebo-controlled, parallel group study designed to evaluate the efficacy, safety and tolerability of VK5809 in approximately 80 patients with elevated LDL cholesterol and nonalcoholic fatty liver disease. Patients are being randomized to receive once-daily oral doses of VK2809 or placebo for 12 weeks followed by a four week off-drug sales. The trials primary endpoint will evaluate the effects of VK2809 on LDL cholesterol after 12 weeks compared to placebo. Secondary and exploratory endpoints include assessments of changes in liver fat content, triglycerides, and inflammatory markers. We're excited to have this trial underway as we expect it to be critical in validating VK2809’s unique liver targeted mechanism of action, which we believe provide differentiated benefits by simultaneously reducing hepatic steatosis an important component of non-alcoholic steatohepatitis or NASH and improving plasma lipid levels. Prior data have shown that treatment with VK2809 leads to rapid histologic improvement in animal models of hepatic steatosis as well as significant reductions in LDL-cholesterol triglycerides and atherogenic proteins. In addition to our ongoing Phase 2 trial of VK5211 in hip fracture, our VK2809 Phase 2 study will provide a second important data readouts during the second quarter of 2017 that we expect will demonstrate the potential value of our pipeline. Beyond the VK5211 and VK2809, Viking’s earlier stage VK0214 program has also progressed well during the year. VK0214 is a novel orally available thyroid receptor beta agonist that selectively regulates the expression of genes believed to be relevant to the manifestation of X-linked adrenoleukodystrophy or X-ALD. X-ALD in an orphan neurodegenerative disorder that can affect both adults and children. As part of our collaboration with the Kennedy Krieger Institute, we recently evaluated VK0214 in a proof-of-concept study and a relevant model of X-ALD. The study was designed to evaluate VK0214's effect on very long chain fatty acids and what's called the ABCD1 knockout mouse model. This model is intended to mirror the loss of ABCD1 transporter activity that is considered the hallmark of X-ALD in humans. The reduction of very long chain fatty acid levels is considered an attractive goal for therapeutic approaches to X-ALD as their accumulation is believed to contribute to the underlying pathology of the disease. Mice in the study received VK0214 or vehicle once daily for six weeks. Very long chain fatty acid levels were determined by measuring unsaturated lysophosphatidylcholine fatty acid esters which are biomarkers of very long chain fatty acids. We were very pleased to announce in July that the study successfully achieved its primary objective demonstrating highly statistically significant reductions in multiple very long chain fatty acids that may play a role in X-ALD. These results are exciting as they provide support for the thesis that selective Thyroid Receptor Beta Agonist could potentially play a role in the treatment of this disease. Throughout 2016, we have seen growing awareness in our pipeline programs among the scientific community with the company being invited to present findings for multiple programs at scientific conferences. In April, we presented positive data from our Phase 1b trial of VK2809 in subjects with mild hypercholesterolemia at the 65th Annual Scientific Session of the American College of Cardiology. The results of this study demonstrated substantial and clinically and statically significant reductions in LDL Cholesterol and Triglycerides following 14 days of treatment. It's gratifying to note that in recognition of the importance of this work, our presentation received a prestigious best poster award from the ACC conference. In September, we presented data from the Phase 1 trial of VK5211 at the 5th Fragility Fracture Network Global Conference. This the results of this study showed VK5211 to be safe, well tolerated and to have a predictable pharmacokinetic profile in health women and men over 65 years of age. Also during the conference we were invited to make an oral presentation highlighting our ongoing Phase 2 study of VK5211 in patients recovering from hip fracture surgery. Conference organizers designated our Phase 2 study poster as one of the conference's top 15 poster presentations. Also in September, we presented the detailed results of our In Vivo evaluation of VK0214 in a knock out model of X-linked adrenoleukodystrophy. These data were presented at the 86 Annual Meeting of the American Thyroid Association and as I mentioned a moment ago, this study demonstrates the promise of VK0214 in reducing very long chain fatty acids which I believe to contribute to the underlying pathology of X-ALD. We believe our presence of these procedures conferences serves to reinforce the depth of our pipeline and the diversification of our programs. The fact that several of these presentations have received special recognition at these meetings, it's gratifying for our team and more importantly provides validation of the scientific myriad of our programs and the interest from the scientific and medical community. The depth, diversity and quality of our pipeline underscores the fact that Viking is not simply a one asset company. Looking to future presentations, we plan to present additional data for VK2809 this month at the American Heart Association Scientific Sessions scheduled for November 12 through the 16 in New Orleans. This presentation will highlight the effects of VK2809 on key atherogenic proteins that were observed in the Phase 1b study in hypercholesterolemia. Reduction in atherogenic proteins are important as they may suggest long-term benefits in patients with elevated cardiovascular risks. Moving to the corporate side, we ended the third quarter in a strong financial position. Earlier this year, we successfully completed an offering of common stock and warrants generating gross proceeds of approximately $10.8 million. In August, we entered into a $12.5 million common stock purchase agreement with the long-term healthcare focused institutional investor, under the terms of this agreement the investor made an initial purchase of Viking shares at a 15% premium over the share price at that time. In addition, they committed to purchase up to an additional $12 million of stock over the next 30 months at prices based on the market price at the time of each sale. Notably, no warrants, derivatives or other share classes will be issued under this agreement and Viking will control the timing and amount of any share sales. We also maintain the right to terminate the purchase agreement at any time at our discretion without additional cost or penalty. We feel these terms are very attractive for both the company and our existing shareholders. We believe our fundraising efforts this year as well as our access to additional capital at our discretion and our judicious use of resources to-date combined to position as well for 2017 and beyond. In closing I'd like to thank our employees who have been working extremely hard to ensure the company achieves the goals we set out to achieve. We've made tremendous progress with a very lean operating structure and that’s only possible with the quality team like we have here. I'd also like to assure our supporters that the Viking team will continue to work tirelessly to meet our objectives. As we look to the end of the year and into 2017 we expect to continue enrolment in our two ongoing Phase 2 trials and currently expect to have readouts from each in the first half of next year. And our third program VK0214 for X-ALD continues to advance toward clinical development. To support these efforts we have a strong balance sheet and access the capital that provides great flexibility to allow us to focus on our key objectives with our distractions. So I’d like to thank everyone for joining us today and we look forward to sharing future updates with you. This concludes our prepared statements for today and I’d now like to open the call for any questions.

[Operator Instructions] And our first question comes from Jason McCarthy of Maxim Group. Please go ahead.

Hi, Brian, thanks for taking the questions. I just have couple of questions first can you give us a little bit more clarity on the adrenoleukodystrophy path forward, have you completed in the enabling studies are done when you plan to file the IND enabling studies are when do you plan to file the IND? And then when can we see that assets potentially move into the clinic.

Yes, hi Jason. Thanks for the question. So we are right now pursuing a longer-term evaluation of that compound in the ALD or the ABCD1 knockout mouse. We should have some data from that study in the first quarter in parallel with that though we will begin the IND enabling work that would allow us to be in a position to file the IND in the second half of 2017.

Okay great. And for 5211 just remind us what the endpoint of that study is and, what resulted in bone mineral density or marrow density you're are expecting to see as well as lean body mass and what do you would represent proof of concept data but you can then use to advance that program into a Phase 3 study. Thanks for taking the question.

Yes, thanks great question so the primary endpoint in the Phase 2 trial for VK5211 is lead body mass to change in lean body mass after 12 weeks of exposure. The exploratory endpoints will look at change in bone mineral density, changes in the functional status, we’re look at number of measures to functional status and then were looking at the quality-of-life metrics as well so, we’ve objective data, functional performance data and then the quality-of-life metrics and we will take that data set to the FDA then to, to discuss what the Phase 3 program will look like. We think that any improvements in lean body mass that either shows a reduction of the deterioration or potential improvement to lean body mass versus space find would be a incredibly exciting, most of the [KLs] [ph] that we speak with consider lean body mass to be potentially as important as bone mineral density because if lean body mass makes personally more frail and makes them more likely to suffer assessment fall and fracture so, that is the primary endpoint 12 weeks maybe a little short to show effect on bone mineral density but overall we think that probably function will be what's the regulators will focus on for registration program.

Right, just one more follow-up to that, for hip fracture, you are in the critical care the acute part or end of the spectrum for treating patients. I guess my question is would you need one or two Phase 3 studies in that population because we're seeing companies like Amgen, Prolia and Radius with Abaloparatide that down the road for preventing hip fractures or additional hip fractures, they are using one study. It's a large study, but it's still one study, and I'm wondering do you have any thoughts on how many studies you would need one or two? Thanks.

Thanks. So I think the way we working about this be conservative and assume that we'll need two studies for approval, but we would certainly welcome the opportunity to do one and then do a post-marketing study, but it's little early to plan for that today.

Okay. Thanks, Brian.

And our next question comes from Yale Jen of the Laidlaw and Company. Please go ahead.

Good afternoon, Brian. Thanks for taking the questions. I'm just going to follow-up little bit on the 5211 as well. But refer that in terms of the care between the United States and the Europe, do you see that any differences or make any difference in terms of the patient and so their base line before you actually treat them or you see that pretty homogenous in terms of homogenized in terms of the patient being taken care of after the fracture?

That's a great question. We don’t see any differences in base line characteristics really. The difference seems to be in the ease of an enrolment, Europe seems to be a little bit more centralized with the treatments of patients. They tend to sort of locate the fracture centers where in the U.S. it's little bit more fragmented and diffused. But as far as the treatment both geographies, fiscal therapies really the standard of care and there is a really major difference.

Okay. That's good to know. And also obviously going forward the study it's positive you would need to speak with FDA certainly for the Phase 3 study. I just wonder at least at this point what could be the end point you would, so the suggesting sort of contemplate about and more - equally important what that be some other - some end points that need to be so the clinical instead of so the - about chemical or measurements? Thanks.

Sure. So, I guess the way that we are thinking about what the regulators would require is that we expect functions to likely be the focus of any registration programs. We don’t know, but that's our expectations. So we are including functional end points that we think the FDA is familiar with in the Phase 2 trial like the six minute walk test we are looking at hand grip strength something called the Borg scale. I think if we were to show a change in bone mineral density that would be very exciting piece of data, because others have shown that improvement in bone mineral that it reduces the risk of refracture and reduces the risk of mortality. I think in a 12 weeks study it maybe a bit of stretch to assume a change in bone mineral density, but if we would to see some single there I think that could open up the very encouraging discussion with the FDA, since that's a well known proxy for reduction in fracture -- in fracture and the mortality.

And I maybe just sneak in one last question here which it is that this is seven years area less travelled by many other companies, so but there is still sort of few competitions there. As of now what -- how you see this competitive landscape right now any reporting of any data that catch your interest? And thanks a lot.

Thank you. Great question. So the competitive landscape I think is very attractive for us right now. The standard of care today is rehabilitation. Osteoporosis drugs are typically not used in this setting because of concerns over their effect on the healing process. And there have been a couple of antibody-based therapies looking at hip fractures generally, but they don’t seem to be progressing very rapidly. I think differentiator for this mechanism both in the development and in potential commercialization is that it should have effects on both muscle and bone. So we should benefit patients in two ways and were oral once daily and another I think key attributes not injectable. But overall very open competitive landscape for us.

Okay. Great. Thanks a lot and congrats on the progress.

And our next question comes from Manish Paul of [MHP Capital] [ph]. Please go ahead.

Thank you. Brian, congratulations. Just two quick questions. With regard to 5211 this on product and the NASH 2809, can you talk about enrolment, have you had any difficulty getting enrolment with regard to the two clinical trials?

So the 5211 study we are rolling in the U.S and Europe. I think the European sites are enrolling more quickly than the U.S. sites that's recently we ended up going over to Europe is to accelerate enrolment relative to U.S. sites. With the 2809 study we are really early. I think there has been a lot of interest in that study, but it's little early in the enrolment curve to really project. We do feel both studies will be enrolled in the first quarter though.

Okay. And there is no specific action with regard to the patient that you noticed with regard to the enrolment of the trial, I mean there is nothing that classify to either way right?

No, nothing really stands out. They both have their inclusion exclusion criteria's, so the patient actually find that way that.

Okay, great. And then the 0214, X-ALD product given the unique method of action in the product, is there a chance you can apply for open drugs status or any kind of you need offering there?

Yes. We have applied for often drug designation and we expect to receive that timing is little uncertain, but we would expect that receive that some time later this year.

In 16 right?

In 2016 right, yeah.

Okay, great. Congratulations. Thank you so much.

[Operator Instructions] Our next question comes from David Bautz of Zacks Investment Research. Please go ahead.

Hi Brian. Thanks for taking the questions. For the VK5211 study, I'm wondering if the amount and type of physical therapy that the patient are receiving is standardize the centers and if any differences there could maybe change their outcome of that study?

Yes, it's a great question. So we have not required any sort of standardization. We know patients are coming back multiple times to their physical therapy or they're receiving physical therapy at home. But we are not requiring any sort of standardize physical therapy regiment. We had a lot of discussions about this with the clinical advisory board when we were setting up the study. And the more we talked about is the more complicating it seems to be to try and set some sort of standard physical therapy threshold to people. And it's started to look less and less realistic or -- like a normal patient might receive as far as therapy. So we don’t expect there to be any major imbalances, but we happen to require any sort of minimal level of physical therapy. It's a great question.

Okay. And for 2809 I wondered you talked little bit about what you're going to look for in the result to kind of make you go to one direction or the other maybe like the first the NASH direction versus just a hypercholesterolemia direction?

Yes. So, the study's primary end point is changing LDL cholesterol at 12 weeks and the exploratory end points changes in liver fats at 12 weeks. Our preference given the competitive landscape and enthusiasm both in the pharmaceutical industry and the investment community is to proceed further into the fatty liver setting. We think that's a reduction in liver fat content in the high teens percentages to the low 20 percentage range would be a clinically meaningful reduction in liver fat content and we had KLs tells us that 20% just a reduction could result in a histological improvement in some of the other features of patients with NASH. So again that's what we would be looking for on the liver fat content reduction.

Okay, great. Thanks for taking the questions.

And our next question comes from Nick Farwell of Arbor Group. Please go ahead.

Brian, I am curious why you - I think you stated you may want to have two Phase 3 studies for 5211 is that to look specifically at body mass separate say from bone density or why do you think the FDA may require two studies - incorporative what you were saying?

No, that's the - companies are required to do two well control Phase 3 studies typically to apply for approval. So that we assume that we would have to conform to those established guidelines.

So it’s not bifurcating. It’s just - it’s required to clinical?

That’s right. Most is - and then there are certainly a lot of exceptions to that, but that’s typically what you assume to have to perform, right.

And if I did my calculations accurately, which is always questionable and look like your cash burn was $2.6 million in the third quarter and you commented that you felt you had sufficient cash at least to get into the latter half of 2017. Could you give us some sense what you think the burn might be in the fourth quarter and perhaps the subsequent couple of quarters assuming you hit your expected targets?

Yes, so I don’t want to get too far into the details of monthly cash burn. But I think if you look at our cash balance at the end of the third quarter that is enough to get us into the third quarter of 2017. We have access to approximately $15 million to $16 million in additional funds through an equity line of credit and an ATM facility. If we were to draw those down fully that would give us close to another year of cash, but I think that’s probably about as far as we can go on the granularity there.

Okay, thank you.

[Operator Instructions] And our next question comes from Bill Wolfenden from Cottonwood Investments. Please go ahead.

Good afternoon. Could I just follow-up on the cash conversation, is the cash on the balance sheet that you refer to get you through Q3 of 2017 is that the $14 million or does that include the $12 million additional or are you considering the $12 million part of your quote ATM program.

No that's - if you look at the cash at the end of the third quarter that’s sufficient to get us into the third quarter of next year.

Okay. And is the ATM then part of the $12 million that we read about in the press release

No the ATM is an additional facility on top of that the equity line. The equity line is 12. The ATM is around three, four.

Got it. Thank you.

And ladies and gentlemen, this concludes our question-and-answer session. I would like to turn the conference back over to management for any closing remarks.

Thank you all again for your participation and continued support at Viking. We look forward to updating you again in the coming months. Thank you. Have a good day.

Thanks everybody.

And ladies and gentlemen, the conference is now concluded. Thank you for attending today's presentation. You may not disconnect.