Viking Therapeutics, Inc. (VKTX) Q2 2017 Earnings Report, Transcript and Summary

Welcome to the Viking Therapeutics 2017 Second Quarter Financial Results Conference Call. At this time, all participants are in a listen-only mode. Following management's prepared remarks, we will hold a Q&A session. [Operator Instructions]. As a reminder, this conference call is being recorded, today, August 9, 2017. I would now like to turn the conference over to Viking's Manager of Investor Relations, Stephanie Diaz. Please go ahead, Stephanie.

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, August 9, 2017, will contain forward-looking statements within the meaning of the Securities Act of 1933 concerning the current beliefs of the company, which involve 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 participating on the call and on the webcast. Today I'll be providing an update on recent progress and developments related to our pipeline programs and operations. We achieved several key milestones during and subsequent to the second quarter with both our VK5211 program for hip fracture and our VK2809 program for liver disease both of which are in Phase 2 clinical trials. We also made progress with our two orphan programs in glycogen storage disease and X-linked adrenoleukodystrophy. I would like to begin today's call with a review of our second quarter 2017 financial results after which I will provide an update on our latest corporate developments. I'll now turn the call over to Mike Morneau, Viking's Chief Financial Officer to discuss our financial results. Mike?

Thanks Brian. In conjunction with my comments, I'd like to recommend participants refer to Viking’s 10-Q filing with the Securities and Exchange Commission which we expect to file later today for additional details. I'll now go over our financial results for the second quarter of 2017. Our research and development expenses for the three months ended June 30, 2017, was $3.7 million compared to $2.4 million for the same period in 2016. This increase was primarily due to increased activities related to our clinical trials for our VK5211 and VK2809 programs, third-party manufacturing of our clinical stage drug candidates, and pre-clinical efforts for our VK0214 program. Our first quarter general and administrative expenses were $1.3 million compared to $1.2 million for the same period in 2016. The slight increase was primarily due to increases in salaries and benefits and legal expenses, offset by a decrease in non-cash stock-based compensation expense. For the three months ended June 30, 2017, Viking reported a net loss of $5.2 million or $0.21 per share compared to a net loss of $3.7 million or $0.22 per share in the corresponding period in 2016. The increase in net loss for the three months ended June 30, 2017, was primarily due to the increase in research and development expenses noted previously. That concludes the second quarter financial review. I'll now go over the financial results for the six months ended June 30, 2017. Our research and development expenses for the six months ended June 30, 2017, were $7.2 million compared to $4.2 million for the same period in 2016. The increase was primarily due to an increase in expenses related to our clinical trial activity for our VK5211 and VK2809 programs. The pre-clinical efforts of our VK0214 program as well as third-party manufacturing of our clinical stage drug candidates. Our general and administrative expenses for the six months ended June 30, 2017, were $2.7 million compared to $2.6 million for the same period in 2016. The slight increase was primarily due to increases in salaries and benefits offset by a decrease in non-cash stock-based compensation expense. For the six months ended June 30, 2017, Viking reported a net loss of $10.4 million or $0.45 per share compared to a net loss of $7.3 million or $0.56 per share in the comparable period in 2016. The increase in net loss for the six months ended June 30, 2017, was primarily due to the increase in research and development expenses noted previously. Our balance sheet at June 30, 2017, shows cash, cash equivalents, and investments totaling $12.1 million as compared to $13.2 million at December 31, 2016. As of July 31, 2017, Viking had 27,697,284 shares of common stock outstanding. This concludes my financial review and I'll now turn the call back over for Brian.

Thanks Mike. In the second quarter, we at Viking have made steady progress with multiple programs. We continue to advance our ongoing Phase 2 clinical trials and generated important pre-clinical data that support our overall development strategy. We also took steps to advance our two orphan drug programs both of which have the potential to be first-in-class or best-in-class therapeutics. We made these advancements while continuing to carefully manage our R&D spend. In addition, we've strengthened our balance sheet and added valuable expertise to our board of directors. With our clinical programs we achieved an important milestone by completing enrolment in the Phase 2 trial of our most advanced program VK5211 for patients recovering from hip fracture surgery. VK5211 is a potentially best-in-class orally available non-steroidal small molecule selective androgen receptive modulator or SARM. In prior studies administration of VK5211 has led to improvements in lean body mass or muscle and bone mineral density. Following hip fracture, many patients experience a loss of bone and muscle at accelerated rates placing them at increased risk of further morbidity, re-fracture, and prolonged disability. We believe VK5211's preliminary profile suggests it could benefit these patients by potentially stimulating the formation of new muscle and bone. Our ongoing Phase 2 trial at VK5211 is a randomized double blind placebo controlled parallel group international study designed to evaluate the efficacy, safety and tolerability of VK5211 in 108 patients with recent hip fractures. Patients in the study are randomized to receive VK5211 doses of 0.5 milligrams, one milligram, two milligrams, or placebo once daily for 12 weeks. The studies 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. In an effort to optimize our trial protocol and the studies probability of success, we used great care in selecting patients for this study. We hope that the extra time, care, and effort that went into this study will ultimately be borne out in the results. With enrolment now complete, we look forward to reporting the initial data from this study in the fourth quarter. I will now shift to our second Phase 2 clinical program VK2809 for the treatment of non-alcoholic fatty liver disease and hypercholesterolemia. VK2809 is a novel orally available small molecule thyroid receptor agonist that possesses selectively for liver tissue as well as the beta receptor subtype. Pre-clinical studies have demonstrated that treatment with VK2809 leads to rapid histologic improvement in animal models of hepatic steatosis, as well as significant reductions in LDL-cholesterol, and triglycerides in humans. In a prior Phase 1b study in subjects with mild hypercholesterolemia, VK2809 was shown to significantly reduce not only LDL-cholesterol and triglycerides but also both lipoprotein A and apolipoprotein B, two proteins associated with increased risks of cardiovascular disease. These data suggest potential long-term cardiovascular benefits that extend beyond those provided by LDL reduction alone. The overall profile of VK2809 thus far suggests promise in diseases that result from lipid disregulation as well as diseases related to liver fat such as NASH. In June, we announced data from a study of VK2809 in an animal model of diet induced NASH which provided further support for its efficacy and unique liver targeting mechanism of action. These results demonstrated statistically significant reductions in fibrosis; liver collagen; liver steatosis, and the non-alcoholic fatty liver disease activity score also known as NASH which is a composite measure of steatosis, inflammation, and ballooning. The study was designed to evaluate VK2809 dosed orally once per day for eight weeks in a mouse model of diet induced NASH. Importantly all animals were biopsied prior to treatments to ensure disease characteristics consistent with the human form of disease including steatosis, ballooning, and the presence of fibrosis. The initial results from this study were very encouraging with VK2809 demonstrating statistically significant improvements compared with vehicle controls across a range of measures. These included the 70% reduction in liver triglyceride content, a 65% reduction in liver cholesterol content, and a 40% reduction in the NAS score. In addition, liver fibrosis was reduced by 50% and liver collagen content was reduced by 60% compared with vehicle controls. In our view the results from the study were impressive across the board and we found the observed effects on fibrosis and collagen content to be of particular importance. Scientific literature suggests that liver fibrosis is associated with long-term outcomes in patients with non-alcoholic fatty liver disease and that hepatic collagen content is correlated with fibrosis staging and outcomes in these patients. In addition recently published data have indicated that a reduction of de novo lipogenesis can produce improvements in markers of liver fibrosis in patients with NASH. These data provide support for the potential benefits of VK2809 in NASH as prior data has shown VK2809 down regulates change important for de novo lipogenesis while simultaneously stimulating the suppression of genes important to lipid metabolism. These known lipid effects combined with our recent observations showing an antifibrotic effect suggests great promise in our view for VK2809s impact in settings where still steatosis and fibrosis are problematic. We recently completed an analysis of genetic markers from this study and expect to announce results of that work in the coming weeks. We plan to present the detailed results from this study at the AASLD Conference in October. We are currently evaluating VK2809 in a Phase 2 trial in patients with fatty liver disease and hypercholesterolemia. This study is a randomized double blind placebo controlled parallel group study designed to assess the efficacy, safety, and tolerability of VK2809 in patients with elevated LDL-cholesterol and non-alcoholic 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 phase. The trials primary endpoint will evaluate the effect of VK2809 on LDL-cholesterol at 12 weeks compared to placebo. Secondary and exploratory endpoints include assessments of changes in lower fat contents, triglycerides, and inflammatory markers. As of today we've completed all planned site openings for the study and enrollment is ongoing. I'd like to take a minute to provide some color regarding the enrollment in this trial. This study is effectively a two-in-one study enrolling patients with both hypercholesterolemia and non-alcoholic fatty liver disease. As a result, our enrollment criteria are somewhat strict as we are seeking patients who present with multiple metabolic abnormalities, in addition to having high liver fat content. Specifically our target patients are required to have elevated LDL-cholesterol, elevated triglycerides, and at least 10% liver fat content. While we believe the specificity of these enrollment criteria will facilitate the highest quality data sets, they also significantly reduce our enrolment pool. Second, today there are multiple ongoing clinical trials in the setting of NASH or fatty liver disease. To some degree this exacerbates the relatively low availability of patients for our study. Each of these items in and of themselves will play a role in reducing the rate of enrollment in a study of this nature. Layering them on top of one another serves to amplify the filtering effect and impacts the pool of eligible patients that might otherwise be available to a dedicated NASH study. In an effort to accelerate enrollment in this study we recently submitted a protocol amendment to the FDA that would widen certain enrollment criteria, while maintaining the rigor and integrity of the trial. This protocol amendment is currently being implemented across all sites and it is our expectation that it should result in an improved rate of enrollment. However to error on the side of caution we now expect the top-line results from these trials to be available in the first half of 2018. I'd like to briefly comment on our strategy with these programs. We believe that both our VK5211 and VK2809 programs represent novel best-in-class therapies for the respective indications and that each has the potential to address large underserved markets. Our strategy with each of these programs is to complete the ongoing Phase 2 proof of concept studies and upon successful results meet with the appropriate regulatory agencies to discuss potential next steps. In parallel, we intend to explore partnering opportunities and keep all options open as we proceed with planning. In our view maintaining a practical and flexible approach will allow us to pursue the highest value options for each program which we believe is in the best interest of our shareholders. In addition to the upcoming data from our two ongoing Phase 2 trials, we are also very excited at some of the opportunities for our programs in orphan disease settings. We are particularly enthusiastic about our programs in glycogen stores disease and X-linked adrenoleukodystrophy. We believe each of these indications represents an opportunity for Viking to proceed into and through registration studies with smaller, faster, and less expensive development programs. And we believe they each hold the potential for us to create significant value with or without an external partner. To this end, earlier this year we announced plans to evaluate VK2809 in Glycogen Stores Disease type 1A or GSD 1A. GSD 1A is an Orphan Genetic Disease that results in resistant Hypercholesterolemia and in excess accumulation of glycogen and lipids in liver. Over time this can lead to hepatic steatosis, hepatic adenomas, and potentially hepatocellular carcinoma. There is currently no pharmacologic treatment available for patients suffering from this disease. Given the novel liver targeting activities of VK2809 and our significant expertise with both the molecule and metabolic liver disease, we believe it offers a potential approach to reducing triglycerides, steatosis, and mitigating certain metabolic complications of GSD 1A. Earlier this year we reported data from an in vivo proof-of-concept study of VK2809 and GSD 1A. In this study treatment with VK2809 produced rapid and substantial reductions in liver triglycerides content, liver weights, and liver weight as a percentage of body weight compared with vehicle treated controls. Main liver triglyceride content was reduced by more than 60% in VK2809 treated animals relative to vehicle treated controls, while average liver weight was reduced by more than 30%. Complete results from the study which was conducted under a sponsored research agreement with between Duke University and Viking will be presented at the upcoming International Conference for Inborn Errors of Metabolism in Rio de Janeiro. We currently plan to file an investigational new drug application for VK2809 for the treatment of GSD 1A and initiate a human proof-of-concept study later this year. During the second quarter we also made progress with our second orphan program VK0214 for X-linked adrenoleukodystrophy or X-ALD. X-ALD is a debilitating disease caused by a defect in peroxisomal transporter called ABCD1. These patients are often characterized by the accumulation of high levels of very long chain fatty acids in tissue and plasma. Sustained elevations in very long chain fatty acids are believed to contribute to the severe cerebral and motor neuron toxicities commonly observed in this disease. VK0214 is a novel, orally available small molecule fire receptor agonist that possess selectively for the beta receptor subtype. The activation of the thyroid beta receptor is believed to stimulate the metabolism a very long chain fatty acids providing a potential therapeutic benefit in this setting. In 2016 Viking and the Kennedy Krieger Institute partner to initiate a pre-clinical study evaluating VK0214 in an animal model of X-ALD. Encouraging initial results from this study were presented last fall at the Annual Meeting of the American Thyroid Association. The study successfully achieved its primary objective, demonstrating the ability of VK0214 to lower plasma very long chain fatty acids after six weeks of treatment in a relevant model of the disease. Subsequent to this initial study, Viking and the Kennedy Krieger Institute initiated a second longer-term study to evaluate the effects of VK0214 over a 25-week treatment window. This study has been completed and we expect to report the initial results this quarter. It is our hope that the combined results of these studies will provide important information related to the efficacy, tolerability, and durability of effects on key biomarkers relevant to the disease. Our work with VK0214 represents an exciting and novel approach to X-ALD. And we believe the data to-date suggests a promising potential benefit. We look forward to discussing this program in greater detail as additional results become available. On the corporate front, we recently took steps to strengthen both our balance sheet and our board of directors. During the second quarter, we completed a registered direct offering raising approximately $4.3 million in gross proceeds. These funds will be used for general corporate purposes including supporting our ongoing clinical trials as well as the pre-clinical and early clinical development for other programs. Finally subsequent to the end of the quarter we announced the appointment of Charles A. Rowland Jr. to the company's Board of directors. Charles has more than 30 years of biopharmaceutical industry experience expanding financial management and strategic business operations. During his career, he's acted as CEO, CFO, or a director for numerous biotech companies at Viking stage. As we approach the conclusion of our Phase 2 trial and prepare to advance our earlier programs into the clinic, we believe Charles's financial and operational expertise will prove invaluable. In closing we've made great progress with all of our programs since our last update. In recent weeks we've completed enrollment of our VK5211 Phase 2 trial in patients recovering from hip fracture surgery and look forward to announcing the results in the fourth quarter. We also completed site openings for our VK2809 Phase 2 trial in non-alcoholic fatty liver disease and hypercholesterolemia and continue enrolling qualified patients into this study. In addition we announced positive results from an in vivo study of VK2809 in a model of diet induced NASH which showed significant improvements in fibrosis, liver collagen, steatosis, and NAS scores. With our orphan programs, we are currently preparing to file an IND application for VK2809 for the treatment of patients with GSD 1A and plan to initiate a proof-of-concept study for this indication later this year. In addition, we recently completed a long-term in vivo study of VK0214 in the ABCD 1 knockout model of X-linked adrenoleukodystrophy. We plan to report these results later this quarter. As we move into the second half of the year we see multiple news events approaching for all of our programs and we look forward to sharing these with you as they occur. This concludes our prepared statements for today. Thanks for joining us and I'd now like to open the call for any questions. Operator?

We will now begin the question-and-answer session. [Operator Instructions]. And our first question will come from Jason McCarthy of Maxim Group.

Hi, Brian, thanks for taking the questions. Couple of questions, first on the NASH, on the NASH study in 2809 can you discuss a little bit the protocol amendments. I was thinking that it might speed up enrollment are you -- do you plan to expand the target number of patients because the date is going to be in the first half of 2018 so maybe you could just discuss that a little bit.

No, we don't plan to expand the trial size. What we're doing is changing the entry criteria for LDL. We've reduced that from the prior which was 130 mgs per deciliter down to 110 mgs per deciliter. We've also reduced the entry level triglycerides from a 150 mgs per deciliter down to I believe 120 mgs per deciliter and we are reducing the liver fat contents from 10% to 8%. And if we look at the patients who would now qualify based on their exclusion for one of those elements. If all of those people come back we are fully enrolled. The question is how many will come back and we're in the process of finding out. But until we know the answer to that I think just giving some conservative guidance here is in everybody's best interest.

Okay. Great. And for the GSD study that you plan to start later this year can you give us a sense of how large of a trial you expect to conduct and what the endpoints of that study will be.

Yes, it's a great question. So, we're actually going through some preliminary powering calculations right now. We think it would be a pretty small trial. We think it would probably be less than 15 patients. But what I won't be able to give you an exact number until we've finished up some of the early analysis here. Regarding the endpoint we would look to have an endpoint evaluating plasma triglycerides likely at 28 days.

Okay, great. And just one -- one question on 5211, can you just review with us what was the endpoint of the study is because if you look back to the prior study, shorter treatment period you had kilogram of increased lean body mass. But this time in the current trial, you're going out to 12 weeks so in your view do you think that the rest of the trial or increases -- further increases the probability of the trial will be successful can you just review what you're expecting.

Yes, it's a great point. So, just as a reminder VK5211 was previously evaluated in a 21-day Phase 1 study in healthy, younger men after 21 days the top dose showed around 2.5 pound improvement in muscle and trends towards improvement in strength and that was at 1 milligram. The ongoing study is dosing 0.5 milligram, 1 milligram, and 2 milligrams for 12 weeks. And so, we think the by virtue of the dose doubling and the exposure window quadrupling and likely seeing a slight enhancement in exposures just because the patients are older that that should improve the probability of success on the primary endpoint which is change in lean body mass which was already demonstrated in the -- in the Phase 1 study.

Great. Thanks for taking the questions, Brian.

Thanks.

The next question will come from Yale Jen of Laidlaw & Company.

Good afternoon. Thanks for taking the questions. In terms of 5211 you anticipated top-line data to be in the fourth quarter could you remind us in terms, any of the powering assumptions and any other comments you may have thinking about what should we think about data ultimately even we don't know that yet at this point?

Yes, thanks, Yale. So we've never disclosed the exact powering in the study. What we said previously I believe was -- is at least 80% power at the 1 milligram dose and I think we may say at least 95% powered on the two milligram dose. I'd say we're right around 80% powered at the 1 milligram dose and we're over 95% powered at the two milligram dose. The initial powering numbers that we discussed on a prior call were based on 120 patients. We enrolled 108 patients I think with 108 we're still very well powered similarly powered as to what we had previously said on the prior earnings call.

Okay, great that's helpful. And I know this is a area that have fewer development but we always been interested just growing do you see the competition, do you see any changes differences in the landscape at this point or any comments on that.

No, the landscape is really as far as we know pretty open. There have been two myostatin antibody based approaches that have been in Phase 2 for hip fracture, one hip replacement, one hip fracture for quite some time. Neither of them have been updated publicly through our knowledge. There are no other storms in development in hip fracture. And just as a reminder osteoporosis drugs are typically not used here because of concerns over the impact on healing process. And so we see a very attractive competitive landscape we -- we certainly see a high unmet need and virtually everyone we speak with knows of a relative or friend who has suffered a hip fracture and experienced sort of the dire consequences that result from becoming more frail and more fragile following the hip fracture. So, we think the -- the opportunity is significant we think the competitive landscape is very open to us and we look forward to completing the study and then speaking with the regulatory authorities about the next steps.

Okay, great. And last question I have is for the VK0214. Talk up, you're going to present a pre-clinical data later this quarter and what might be the path for the go, no go criteria in terms of whether you're going to move this into clinical study or any thought in terms of the outlook in this program going forward?

Yes it's a great question and we’re still working through that. We think based on what we've seen in the six week study that was reported previously that the magnitude of the very long chain fatty acid reductions would justify moving into the clinic. What we've seen in the longer-term study and we have not reported the data but we see consistent effects and you might expect an improvement in certain measures with longer exposures. I think something that would be very interesting would be to observe an effect on tissue levels of very long chain fatty acids. We've seen effects at least reported last year effects on plasma levels and so we're looking at tissue levels of very long chain fatty acids. I don't think that is a mandatory box to check before going into the clinic but it would be interesting to see that.

And would that be the one makes the future entering human study or there is also you work on them in terms of your allocated resources in the triglycerides and that as well, the result as well?

Yes, we will have to decide what's the best path forward there but I think we have the comfort that moving into the clinic would certainly be a reasonable next step after we get through the IND enabling work.

Okay, great. Thanks a lot. I appreciate it.

Thanks, Yale.

And next we have a question from David Bautz of Zacks Investment Research.

Hey good afternoon. Thanks for taking the questions. 5211 looking ahead to the data readout, if the study doesn't hit just so significance on the primary but it does say on some of the secondary endpoints, do you think that’s going to be enough to move ahead to Phase 3?

Yes, it's a great question. We would have to see what the data actually look like. We have felt and our clinical advisory board has felt that muscle is really a leading indicator of function. And so the expectation would be to show a statistically significant benefit and a clinically meaningful benefit on muscle that translates into a signal on physical function, it's reversed -- it's an interesting question. Most assume that physical function is going to be the more important endpoint for the regulators and so we certainly don't want to miss on any endpoints but if we were to miss on the primary ensuring improvement in physical function, I think it would really speak to the importance of speaking to the FDA about what the next steps would be.

Okay. And can you just talk about the competitive landscape for 0214 and X-ALD and kind of in particular about the size, the population, and whether that population could support multiple treatments on the market?

Yes. So Bluebird has a gene therapy that is in registration study today for the childhood cerebral form of the disease. There is a private company called NeuroVia that is developing a thyroid beta agonist for I believe also the cerebral form of the disease. There is nothing to our knowledge in the clinic how to say I guess high-dose biotin in I guess in European study, the Phase 2 study that is ongoing in Adrenomyeloneuropathy patients. And I think where we would initially target anyway would be Adrenomyeloneuropathy patients for proof of concept study and evaluate inflammatory markers that might be relevant to the cerebral form of the disease. But right now I think there is certainly given that the unmet need, I think everybody has a slightly different profile and I think there is room in these, despite the size -- that the size of the population, there is room for multiple alternatives.

Okay, great. Thanks for taking the questions.

Thanks, David.

The next question comes from Carol Werther of H.C. Wainwright.

Hi, thanks for taking my questions. So I wanted to talk a little bit about 2809 and the study that is ongoing in hypercholesterolemia and NASH. So the primary endpoint is the change in baseline from LDL-c. What kind of magnitude are we looking for and has that changed with the amendment of the trial?

No, it has not changed with the amendment, which the protocol amendment. We are powered over 90% to show, a, I think it's a 14% reduction. We would certainly based on the Phase 1 experience expect to see a greater than 14% reduction. Keep in mind that Phase 1b study at 14 days showed a 60% reduction. I'm sorry 41% reduction I think at 10 milligrams. I don't have that data in front of me. But we don't expect any difference in the magnitude. When you look at other thyroid receptor agonist that has been out there, the baseline LDL effect does not seem to have a major impact on the efficacy. Certainly when you trend higher, you see a greater effect on baseline. And when you trend lower on baseline you see a lower effect but it seems to be -- the mechanism seems to be very effective, it's almost independent of the baseline.

Okay, that's helpful. And then just on the liver fat content, it sort of again what kind of change are we looking for there?

So our power to show a 20% change in liver fat content, when we look at recent data from VACC inhibitors for example, I think that in a very small cohort of 40% reduction in liver fat content led to an improvement in MRE, so a marker fibrosis. So I think if you can show an effect that is 25% or greater on liver fat content, the feeling that we've got from KOLs to that is likely to result in a histologic benefit on liver tissue. So that's what we would hope to show something in that 20% or greater range.

Okay. Great. Thank you very much.

Thanks Carol.

And this concludes our question-and-answer session. I would like to turn the conference back over to Stephanie Diaz for any closing remarks.

Thanks Laura. Thank you again for your participation and continued support of Viking Therapeutics. We look forward to updating you again in the coming months. Thanks and have good afternoon.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.