Viking Therapeutics, Inc. (VKTX) Q3 2017 Earnings Report, Transcript and Summary

Good afternoon and welcome to the Viking Therapeutics' 2017 Third 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, today's conference call is being recorded, today, November 8, 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, November 8, 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. During the third quarter Viking achieved a number of important milestones with our clinical programs VK5211 for hip fracture and VK2809 for liver disease, as well as our earlier stage programs targeting glycogen stores disease and X-linked adrenoleukodystrophy. I'd like to begin today's call with a review of our third quarter 2017 financial results after which I will provide an update on our most recent 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 third quarter of 2017. Our research and development expenses for the three months ended September 30, 2017, were $3.5 million compared to $2.1 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, pre-clinical efforts for our VK0214 program as well as services provider by certain third-party consultants. Our third quarter general and administrative expenses were $1.2 million which was consistent with $1.2 million for the same period in 2016. For the three months ended September 30, 2017, Viking reported a net loss of $6.1 million or $0.22 per share compared to a net loss of $3.8 million or $0.20 per share in the corresponding period in 2016. The increase in net loss for the three months was primarily due to the increase in research and development expenses noted previously as well as an increase in expense related to the change in fair value of our debt conversion feature liability. That concludes the third quarter financial review. I'll now go over the financial results for the nine months ended September 30, 2017. Our research and development expenses for the nine months ended September 30, 2017, were $10.7 million compared to $6.4 million for the same period in 2016. The increase in research and development expenses was primarily related to increase in expenses related to our clinical trial activity for our VK5211 and VK2809 programs and pre-clinical efforts of our VK0214 program, third-party manufacturing of our clinical stage drug candidates as well as regulatory and other consulting services provided by certain third-party consultants. Our general and administrative expenses for the nine months ended September 30, 2017, were $3.9 million compared to $3.8 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 nine months ended September 30, 2017, Viking reported a net loss of $16.5 million or $0.67 per share compared to a net loss of $11.1 million or $0.74 per share in the comparable period in 2016. The increase in net loss for the nine months ended September 30, 2017, was primarily due to the increase in research and development expenses noted previously. Our balance sheet at September 30, 2017, shows cash, cash equivalents, and investments totaling $9.8 million as compared to $13.2 million at December 31, 2016. As of October 31, 2017, Viking had 28,498,847 shares of common stock outstanding. This concludes my financial review. And I'll now turn the call back over for Brian.

Thanks Mike. This is a pivotal time for Viking. We are approaching the anticipated read out of Phase II data from our VK5211 program and patients recovering from hip fracture. We expect to report the results from this study before the end of the year. We are also continuing to enroll patients in our ongoing Phase II trial of VK2809 and plan to complete that study in the first half of 2018. During the third quarter we made progress not only with these two clinical programs, but also with the earlier stage programs which target two orphan disease indications. We continue to carefully manage our resources and took steps during the quarter to strengthen our balance sheet and provide improved financial flexibility. We also increased the size of our Board of Directors during the third quarter adding an important director whom we believe will provide valuable insight and guidance as we continue to grow and execute our strategic plan. I'll start with an update on our VK5211 program 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. And we are not alone in this assessment. During the third quarter, we hosted a Key Opinion Leader Event in New York, which highlighted current treatment options and the importance of preserving musculoskeletal health in elderly patients following hip fracture as well as in other settings. At this event, the panelists provided an overview highlighting the significant unmet medical need in this area and insight as to how VK5211's novel characteristics may provide therapeutic benefit in this population without the side effects associated with broad acting androgen such as testosterone. We found the discussion to be encouraging and very well received by the audience both in person and via webcast. We are currently conducting a Phase II trial of VK5211 in patients who have recently suffered a hip fracture. This study 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 this study are randomized to receive VK5211 doses of 0.5 milligrams, 1 milligram, 2 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. With enrollment in this study now complete, we are on track to report the initial results from the study later this quarter. I will now move to our second clinical program, VK2809 which is also in a Phase II study enrolling patients with non-alcoholic fatty liver disease and hypercholesterolemia. VK2809 is a novel, orally available small molecule thyroid receptor agonist that possesses selectivity 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 liver disease, as well as significant reductions in LDL-cholesterol, and triglycerides in humans. In a prior Phase Ib 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 the second quarter, we announced data from a study of VK2809 in an animal model of NASH. The study was designed to evaluate VK2809 dosed orally once per day for eight weeks [indiscernible] that it developed true diet-induced NASH as confirmed by a pre-study biopsy. In the study, animals receiving VK2809 demonstrated statistically significant reductions in fibrosis, liver collagen, liver steatosis, and the non-alcoholic fatty liver disease activity score also known as NAS, which is a composite measure of steatosis, inflammation, and ballooning. We present the final results from this study last month at the AASLD meeting in Washington D.C. Key results included data showing that eight weeks of treatment with VK2809 produced an 80% reduction in total liver lipids, a 70% reduction in liver triglycerides, a 65% reduction in liver cholesterol, and 40% reduction in the NAS score. All of these data were statistically significant. Treatment with VK2809 also resulted in statistically significant reductions in key measures of fibrotic activity including a 50% reduction in total liver fibrosis, a 60% reduction in Type 1 collagen content, and a 46% reduction in liver hydroxyproline content. These absorbed effects on fibrosis and collagen content are particular importance as 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. As part of this study, we also conducted an analysis of genetic markers following exposure to VK2809. The results demonstrated statistically significant changes in the expression of key genes associated with NASH, development and progression. Overall, we were very pleased to see a broad metabolic effect resulting from treatment with VK2809 showing improved steatosis, fibrosis and NAFLD activity score. These data support our rationale for evaluating VK2809 in a variety of clinical settings. As I mentioned a moment ago, we are currently evaluating VK2809 in a Phase II 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 after 12 weeks compared to placebo. Secondary and exploratory endpoints include assessments of changes in liver fat, triglycerides, and inflammatory markers. Enrollment in this study is ongoing and we look forward to completing this study in the first half of 2018. We believe that both our VK5211 and VK2809 programs represent novel best-in-class therapies for the respective indications. As discussed on our last quarterly update, our strategy with each of these programs is to complete the ongoing Phase II proof-of-concept studies and upon successful results meet with the appropriate regulatory agencies to discuss potential next steps with each program. 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 all of our stakeholders. In addition to our two ongoing clinical programs, we continue to advance two orphan disease programs, both of which we believe have the potential to be best-in-class options for serious conditions with no available treatments. Beyond the potential therapeutic benefit of our pipeline candidates in these indications, rare disease programs have certain characteristics that appeal to us, including the potential for reduced clinical trial sizes and expenses and the possibility of such programs maybe advanced independently without the assistance of larger partners. I'll begin with our program evaluating VK2809 in glycogen storage disease type Ia or GSD Ia. GSD Ia is an orphan genetic disease caused by the efficiency of glucose-6-phosphatase and enzyme responsible for the liver production of glucose from glycogen and gluconeogenesis. The disease for which there is no pharmacologic treatment results in increased triglyceride production and elevated hepatic triglyceride content. This can potentially lead to hepatic steatosis, development of hepatic adenomas, and hepatocellular carcinoma. In September, we reported final results from in vivo proof-of-concept study, which evaluated VK2809 in a model of GSD Ia. This study was conducted under a sponsored research agreement with between Viking and Duke University, and the results were presented at the 13th International Conference of Inborn Errors of Metabolism in Rio de Janeiro, Brazil. The result demonstrated the treatment with VK2809 led to the typically significant reductions in key metabolic markers of GSD Ia. Specifically, VK2809 produced a 69% reduction in liver triglycerides, 36% reduction in liver weight and a 54% reduction in the literary concentration compared to vehicle treated controls, and evaluation of VK2809 on markers of autophagy and genes associated with lipid metabolism in this model is ongoing. We believe the rapid and significant reductions in liver triglycerides content, combined with the reduction of total liver triglycerides to within normal ranges for wild type animals, suggest that treatment with VK2809 may provide therapeutic benefit in patients with GSD Ia. We plan to file an IND later this year to advance VK2809 into a proof-of-concept study in patients with GSD Ia. Moving to our second orphan disease program, in October, we announced data from a study evaluating our second novel thyroid receptor beta agonist VK2809 in a model of 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 long chain fatty acids in plasma and tissue. 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. 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. VK0214 is an orally available, small molecule thyroid receptor agonist that possesses selectivity for the beta receptor subtype and made therefore represent a potential pharmacologic approach to the disease. In 2016 Viking and the Kennedy Krieger Institute partner to initiate a pre-clinical study evaluating VK0214 in an animal model of X-ALD call the ABCD1 knockout model. Encouraging initial results from this study were presented last year at the 86th annual meeting of the American Thyroid Association. The study successfully achieved its primary objective, demonstrating the ability of VK0214 to reduced plasma levels of very long chain fatty acids after six weeks of treatment. Subsequent to this initial study, we and the Kennedy Krieger Institute initiated a second longer-term study to evaluate the effects of VK0214 over a 25-week treatment window to access the effects on plasma and tissue in the same disease model. The results of this study were presented just last month at the 87th annual meeting of the American Thyroid Association held in Victoria British Columbia. The results of this study showed that treatment with VK0214 led to significant reductions in plasma levels of multiple very long chain fatty acids including the benchmark highly toxic C26 fatty acid. Importantly data from this study also showed a very long chain fatty acids in CNS tissues were also significantly reduced suggesting a potential direct benefit in both brain and spinal cord. In addition, the results showed improved expression of the compensatory transporter known as ABCD2 in both brain and liver tissue. As I mentioned earlier the accumulation of very long chain fatty acids it's believed to contribute to the underlying pathology of X-ALD. But these data showing reduced very long chain fatty acids as well as improved transporter expression provide additional support for the role of selective thyroid receptor beta activation as a potential therapeutic approach to the treatment of this disease. These results provide a strong rationale for the continued development of VK0214 and we are currently planning next steps for this program. While we have made great progress to date with our pipeline it is important that we have both the financial resources and the corporate expertise to support the ongoing advancement of our multiple programs. So, this end during the third quarter we entered into common stock purchase agreements with an institutional investor providing access to up to $16.25 million. The agreements provide us with flexible access to capital at attractive terms moving forward. Finally, to expand the depth of our corporate expertise during the third quarter we announced the appointment of Charles A. Rowland Jr. to the Company's Board of Directors. Charlie 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 continue to mature and develop as a company having access to someone with Charles's financial and operational expertise will be invaluable. In conclusion as I mentioned at the beginning of the call the past few months have been an extremely busy and exciting time at Viking. We remain on track to announce results from our Phase II trial of VK5211 in hip fracture by year-end and we expect to complete our ongoing Phase II trial of VK2809 in fatty liver disease and hypercholesterolemia in the first half of 2018. During the third quarter we continued to generate strong support for these programs. With respect to VK5211, the encouraging overview of the program as outlined in our KOL event last month, as they given us confidence in the promise of this candidate in multiple settings. With respect to VK2809, during the quarter we announced positive final results from an in vivo study in a model of diet induced NASH which demonstrated to significant reductions in fibrosis, collagen, steatosis, and non-alcoholic fatty liver disease activity score. We also reported important changes in gene expression that resulted from VK2809 action on the thyroid hormone receptor. These results provide compelling support for VK2809's efficacy and unique liver targeting mechanism of action. With our orphan programs, we recently presented positive findings from both our GSD Ia and X-ALD programs. These studies provide validation for our continued activity in both settings and we remain on track to file an IND application for VK2809 later this year for the treatment of patients with GSD Ia. With respect to VK0214, we are excited by the consistent signal observed in the in vivo proof-of-concept studies in X-linked adrenoleukodystrophy and look forward to providing further updates on this program as available. This concludes our prepared statements for today. Thanks for your support and for joining us, and I'd now like to open the call for questions. Operator?

Ladies and gentlemen, at this time we will begin the question-and-answer session. [Operator Instructions] Our first question today comes from Jason McCarthy from Maxim Group. Please go ahead with your question.

Hi, Brian. Thanks for taking the questions. There are couple questions just with the head fracture study, can you remind us what the expectation is around the increase in lean body mass and how the secondary endpoints, even though they're not powered just based on numbers of patients. What those endpoints, whether it's [indiscernible] bone mineral density could it mean if they trend positively for the outlook for VK5211? What are regulators looking for?

Thanks Jason for the questions. So, on the primary endpoint; we think if we can show a 2% to 3% difference from the control arm, the placebo arm according to all of our KOLs that would be a very meaningful improvement in lean body mass for these people. As far as the secondary endpoint and the exploratory endpoints, so we have a variety of endpoints in there that we know FDA is interested in. For example, six-minute walk test, we know drugs have been approved using that test. The short physical performance battery, we know that that is being used in Sarcopenia studies. So, we know the update is similar with those and we also have best of 36 for quality-of-life. And so, you're right to say that we are not powered on any of those, but I think if we were to show a numerical trend in support of the treatment arms for any of those endpoints, it would be very meaningful. And we don't necessarily think we have to hit all of them, but if you can see some trend I think that would be a very positive sign. And I'll add at the KOL event just last month, one of the speakers indicated that he didn't care what the secondary endpoints looked like if we showed an improvement in lean body mass he thought it would be a good idea to just proceed aggressively because he felt that the functional and quality of life metrics would follow if you can improve lean body mass. So, we're hopeful that we can hit them although.

Right. And I remember at the KOL event, which is a great event. Some of the doctors there were talking about using VK5211 not just for hip fracture, but for knee replacement and hip replacements. Can you just talk a little bit about the potential of using a [indiscernible] like this across multiple indication?

Yes. So one thing that was really interesting during one of the presentations was the comments that when you get older in life, your deterioration in health and physical status is not necessarily tied directly to age, but it's tied to major events, major illnesses if you get an infection, if you get pneumonia, if you're hospitalized for something you never quite come back to your pre-functional or you're pre-illness or pre-injury status regardless of what that is once you get older. And so, his comment was that if you can take something that would help you following one of these major traumatic events later in life. That might preserve function and just preserve your overall health much better than if you were simply destruction in the hospital. So those were just sort of the generic comments about when it might be used outside of the hip fracture setting. And getting into specifics around other fractures, we feel that there are - I mean probably, we would be interested in looking at other [indiscernible] as well as the replacement market. We think that both knee and hip replacement. Those patients lose muscle and bone pretty rapidly as well. So those would be ideal candidates for that sort of therapy. So, we think there are broader indications, but the first will be hip for us.

Okay, just one brief question on 0214, you show great preclinical data and you had mentioned you're finishing up some other pre-clinical work. Can you give us a sense of what the Company is making in terms of moving into the clinic in 2018, maybe when we could see IND filed?

Yes. So, we haven't initiated the GLP study there yet. We're planning those and one of the questions is how long should those studies be and how long should the initial human study be? But we think we could be in a position to file an IND for that program in the second half of 2018.

Okay, thank you Brian.

Thanks a lot.

Our next question comes from David Bautz from Zacks. Please go ahead with your question.

Hey, good afternoon. Question about VK2809 study, you've previously mentioned there's a lot of competition for patients, a lot of NASH that is going on. I was wondering if you think this is simply a lack of patients I want to participate in clinical trials or do you think it's more indicative of a fact maybe that NASH market isn't quite as big of people think it is?

Yes, it's an interesting question. I think the NASH market is probably actually bigger than people think it is, just coming from AASLD. There's just - every year the market seems to be larger than people believe and that the fact that more and more transplants are taking place due to problems resulting from NASH. I think the market is real, but one of the issues for us in particular VK2809 is that we're doing two studies and one so patient have to be meet the enrollment criteria for both the hypercholesterolemia and the fatty liver study, and that that tend to exclude more than we had initially expected, but that you had later that onto the competition for patients that you mentioned I think both of those make good studies in the setting and challenging but I think we're making good progress.

Okay, now for the orphan indications. Do either of those have patient advocacy groups that you could potentially partner with or even to get funding from to run those trials?

Yes, they both do actually. So last month was the Annual Meeting - it was in September, the Annual Meeting of the Glycogen Storage Disease Association and then next Friday is the Annual Meeting of ALD connect, which is a big X-ALD, the patient advocacy group and we were at the GSD meeting and will be at the X-ALD meeting. So, I think we have a good relationship with the patient advocacy groups and that should go a long way toward building enthusiasm and participation and in both of those studies.

Okay, they potentially be - went through for a patient recruitment?

Yes.

Great, thanks for taking the questions.

Thanks David.

Our next question comes from Scott Henry from ROTH Capital. Please go ahead with your question.

Thank you and good afternoon. Just one question on clarification as we look to the SARM data for VK5211, and I believe the last patient was out in late September and typically if we get six weeks for topline readout, we would be think about the back half of November? Is there anything unique that make push this data perhaps further into early December or late December? Just trying to get a sense of when to look for that top line data? Thank you.

Yes, it's a great question and I think you had a very fair question. One of the issues - not an issue, one of the things with the study, it's an international study. We have a central reader on our decks to scans and transferring data from some of those international sites. It's not as straightforward as you might think it is. But I mean it's all moving forward and there are no major glitches or anything like that. I think your timing is not wildly inappropriate. We hope to have a data as soon as possible, but we guide into the fourth quarter and probably can't give much better perception than the fourth quarter right now.

Okay, fair enough. Thank you for the color and thank you for taking the question.

Yes, thanks Scott.

And ladies and gentlemen, we have reached the end of today's question-and-answer session. At this point, I'd like to turn the conference call back over to management for any closing remarks.

Thank you again for your participation and continued support of Viking Therapeutics. We look forward to updating you again in the coming months. That concludes our call for today. Thanks.

Ladies and gentlemen, that does conclude today's conference call. We do thank you for attending. You may now disconnect your lines.