Viking Therapeutics, Inc. (VKTX) Q1 2018 Earnings Report, Transcript and Summary

Welcome to the Viking Therapeutics 2018 First Quarter Financial Results Conference Call. At this time, all participants are in listen-only mode. Following management's prepared remarks, we will hold a question-and-answer session [Operator Instructions]. As a reminder, this conference call is being recorded today, May 9, 2018. 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, Viking’s Vice President of Finance and Administration. Before we begin, I'd like to caution that comments made during this conference call, today, May 9, 2018, 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 statement 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. 2018 is off to an excellent start at Viking. During the first quarter, we continued to enroll our Phase 2 clinical trial evaluating VK2809 for liver disease. We also continued planning for a potential meeting with regulators regarding the next date for our SARM candidate VK5211 for hip fracture. And finally, we advanced both of our earlier stage programs targeting glycogen storage disease and X-linked adrenoleukodystrophy. I’d like to begin today’s call with a review of our first quarter 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 Vice President, Finance and Administration to discuss our financial results. Mike?

Thanks, Brian. In conjunction with my comments, I’d like to recommend that 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 the financial results for the first quarter of 2018. Our research and development expenses for the three months ended March 31, 2018 were $3 million compared $3.5 million for the same period in 2017. The decrease was primarily due to decreased manufacturing expenses for our drug candidate and decrease in activities related to our VK5211 clinical development program, offset by an increase in certain preclinical efforts and an increase in the use of third-party consultants. Our first quarter general and administrative expenses were $1.8 million compared to $1.4 million for the same period in 2017. The increase was primarily due to increases in stock based compensation and salaries and benefits-related expenses. For the three months ended March 31, 2018, Viking reported a net loss of $3.6 million and a basic net loss per share of $0.08 compared to a net loss of $5.2 million and a basic net loss per share of $0.23 in the corresponding period in 2017. The decrease in net loss for the three months ended March 31, 2018 was primarily due to the increase in income related to the decrease in the fair value of our debt conversion feature liability. Our balance sheet at March 31, 2018 showed cash, cash equivalents and investments totaling $77.5 million. As of April 30, 2018, Viking had 50,933,195 shares of common stock outstanding. This concludes my financial review. And I’ll now turn the call back over to Brian.

Thanks Mike. Building on the progress we achieved during 2017, we at Viking continued to advance each of our active programs during the first quarter of 2018. I’ll first provide an update on VK5211, Viking’s lead program for the treatment of muscle and bone disorders. VK5211 is an orally available non-steroidal selective androgen receptor modulator, or SARM, designed to selectively stimulate muscle and bone formation with reduced activity in peripheral tissues, such as skin and prostate. In November of last year, we announced positive results from a Phase 2 clinical trial evaluating VK5211 in patients who had suffered a recent hip fracture. Following surgery to repair hip fracture, many patients experienced losses of bone and muscle at accelerated rates, placing them at increased risk of further morbidity, refracture and prolonged disability. For these reasons, hip fracture is a serious medical condition. And as our population continues to age, the incidence of hip fracture and other fracture injuries is expected to significantly increase. It’s our belief that VK5211 may represent an important treatment option for these patients by stimulating the formation of new muscle and bone, thereby improving musculoskeletal health and facilitating the recovery from fracture related injuries. As we reported last November, our Phase 2 clinical trial in hip fracture patients successfully achieved its primary endpoint, demonstrating statistically significant dose-dependent increases in lean body mass, less head, following 12 weeks of treatment with VK5211 as compared to placebo. The study also achieved important secondary endpoints, demonstrating statistically significant increases in appendicular lean mass, which is muscle in the limbs and total lean body mass, for all doses of VK5211 compared to placebo. In addition, though not power for significance, endpoints assessing physical functions showed numerical trends favoring treatment arms. Importantly, VK5211 also demonstrated encouraging safety and tolerability in this study, with no drug-related serious adverse events reported. We have submitted these data for presentation at an upcoming medical conference. We believe that results from the Phase 2 study provide strong evidence for VK5211's efficacy in stimulating muscle growth and we are preparing to request a meeting with the FDA to discuss potential next steps with the program. As we’ve outlined in prior calls, subsequent studies for this program will require the commitment of substantial financial resources. And we believe these efforts would be best executed by a partner, particularly one with an existing bone or musculoskeletal franchise. We are currently exploring partnering opportunities that will allow us to optimize the value of VK511 and move the program forward in the most efficient manner possible. We will provide further updates on these activities as warranted. I’ll now turn to our second clinical program, VK2809, which is in a Phase 2 study enrolling patients with nonalcoholic fatty liver disease and elevated LDL-cholesterol. VK2809 is a novel, orally available small molecule thyroid receptor agonist that possesses selectivity for liver tissue, as well as the beta receptor subtype. Previous studies have demonstrated that treatment with VK2809 leads to rapid histologic improvement in animal models of liver disease, as well as significant reductions in plasma lipids 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 may extend beyond those provided by LDL reduction alone. The overall profile of VK2809 thus far suggests promise in diseases that results from lipid dysregulation, as well as those related to liver fat such as NASH. In 2017, 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 in rodents that had developed true diet-induced NASH as confirmed by a pre-study biopsy. In the study, animals receiving VK2809 demonstrated statistically significant reductions in liver fibrosis, liver collagen content, 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 believe the combination of prior human and animal data for VK2809 provides strong support for its potential benefit in liver disease, and we expect the results from our ongoing clinical trials to provide further evidence of VK2809’s promise in the setting of NASH. Our Phase 2 trial 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 trial's 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 content, plasma lipids, and inflammatory markers. During the first quarter, we continued to enroll new patients in this study. We’re nearing completion of enrollment and remain on target to announce results for the trial in the second half of 2018. I'd now like to provide an update on Viking's rare disease programs, evaluating VK2809 in glycogen storage disease type Ia, or GSD Ia, and VK0214 in X-linked adrenoleukodystrophy or X-ALD. Both GSD Ia and X-ALD are debilitating diseases with no available treatments. This unmet medical need creates an opportunity for Viking’s candidates to potentially be first-in-class and best-in-class therapies. And due to the fact that these are rare diseases, the required trial sizes and associated expenses are likely to be lower than for larger indications, opening the door to Viking potentially advancing these programs independently without the support of partner. I’ll first discuss our program evaluating VK2809 in glycogen storage disease type Ia. GSD Ia is an orphan genetic disease caused by a deficiency of glucose-6-phosphatase, an enzyme responsible for the liver's production of glucose from glycogen and gluconeogenesis. The disease results in an increased triglyceride production and elevated hepatic triglyceride content. This can potentially lead to hepatic steatosis, hepatic adenomas, and hepatocellular carcinoma. In the third quarter of 2017, we reported final results from an in vivo proof-of-concept study, which evaluated VK2809 in a model of GSD Ia. This study was conducted under a sponsored research agreement between Viking and Duke University. The results demonstrated that treatment with VK2809 led to statistically significant reductions in key metabolic markers of GSD Ia, including liver triglyceride content and total triglycerides. We believe the improvements observed in this study provide strong support for the continued development of VK2809 as a treatment of GSD Ia. During the first quarter of 2018, we filed an IND to advance VK2809 into a proof-of-concept study in patients with GSD Ia. We expect this trial to begin dosing later this quarter. Our second rare disease program is evaluating our novel thyroid beta agonist, VK0214 in X-linked adrenoleukodystrophy or X-ALD. X-ALD is a devastating disease caused by a defect in peroxisomal transporter called ABCD1. Patients with X-ALD are often characterized by the accumulation of very 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. Activation of the thyroid beta receptor is believed to stimulate the metabolism of very long chain fatty acids, providing a potential therapeutic benefit. VK0214 is an orally available small molecule thyroid receptor agonist that possesses selectivity for the beta receptor subtype and may therefore represent a potential pharmacologic approach to the disease. In 2017, we along with our collaborators at the Kennedy Krieger Institute, completed a 25 week study evaluating VK0214 in an animal model of X-ALD, called the ABCD1 knockout model. The results from this study showed that treatment with VK0214 for 25 week led to significant reductions in plasma levels of multiple very long chain fatty acids, including the benchmark highly toxic C26 fatty acids. In addition, the results showed improved expression of the compensatory transporter known as ABCD2 in both peripheral and CNS tissues. As I mentioned earlier, the accumulation of very long chain fatty acid is believed to contribute to the underlying pathology of X-ALD. Thus 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 X-ALD. We recently initiated IND enabling work for VK0214 and plan to file an IND to conduct a proof-of-concept study in X-ALD 2019. In conclusion, I'll reiterate that the first quarter has been an exciting and productive period for Viking as we continue to build on the momentum from 2017. We continue to explore partnering discussions around our novel SARM, VK 5211 per hip fracture and are preparing to request a meeting with the FDA on potential next steps with the program. With respect to our novel thyroid receptor beta agonist, VK2809 for fatty liver and hypercholesterolemia, we continue to roll patients in our Phase 2 trial and remain on track to announce data from this study in the second half of the year. Lastly, we are advancing our rare disease programs targeting glycogen stores disease and X-linked adrenoleukodystrophy. We expect to initiate a proof-of-concept trial for VK2809 and GSD Ia in the coming weeks, and we plan to complete IND enabling studies for VK0214 in X-ALD later this year. Each of these programs represent exciting future opportunities for Viking. This concludes our prepared statements for today. Thanks for your support and thanks for joining us on today's call. And I’d now like to open the line for questions. Operator?

Thank you. We will now begin the question-and-answer session [Operator Instructions]. And our first question comes from Joe Pantginis of H.C. Wainwright. Please go ahead.

Couple of questions if you don’t mind, first on 5211, you obviously talked to the business development discussions ongoing right now. Brian, how much of a gating factor do you think the FDA visibility is to be able to get to a term sheet?

For some this is not a gating factor at all. For others, they would prefer to have comment from the FDA until the FDA is willing to provide something before they will get serious. But I think that we don’t consider that’s a gating factor for some of the larger companies, in particular some of the global companies with existing osteoporosis or musculoskeletal franchises. It’s more important for regional players.

And then just a quick follow-up with regard to your orphan program, you obviously have a bolstered balance sheet now. I am just wondering even though they’re still early stage. How having this additional cash could help accelerate these programs? And of course more forward-looking type of question is, what could a regulatory path look like for these orphan indications, because presumably that could get to the market relatively faster than other drugs, one would assume?

So with our GSD I program, we’re set to beginning dosing near term with a small proof of concept study that we would probably generate some data from later this year and wrap up the final data next year. We would then plan to meet with the FDA to talk about what a potential registration path might look like, assuming the trial is successful. And if we are able to move into registration trial, we would anticipate that happening in the 2019 timeframe. With the X-linked adrenoleukodystrophy program, it’s a similar strategy. So we will be doing a relatively short study to evaluate biomarkers, particularly the very long chain fatty acids in subjects with X-ALD. It would be a small study. And we think we could complete this in 2019 and speak with the FDA then in late 2019 or 2020, and discuss what a registration path might look like. So we would hope to -- and this is what many others do as well. We would hope to generate proof-of-concept study data and then discuss with the regulators what the registration path might look like.

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

Just a couple of questions, first with regard to 5211. What are your thoughts on potential stress urinary incontinence indication?

It’s an interesting question. We have obviously generated, I think very compelling data in the setting of hip fracture. We know that this mechanism has shown some benefit in the setting of stress urinary incontinence. And there is no trial ongoing with another SARM in that setting. We find it really interesting and compelling opportunity. But I think our plan now is to continue the dialogue that we have with potential partners and see where those lead -- those conversations lead. And we’ll also be monitoring the progress with the other SARM and see what those data look like. And I believe that will be expected by the end of the year. I will say it on the levator ani muscle, which is the muscle that many considered to be important in that setting, VK5211 has shown very potent effects. And so we do think that if the mechanism is validated in this next trial result, it would be really interesting for 5211. But at this point, the near-term plan is to certainly continue discussions with partners.

And then when we think about data for 2809, and I know you guidance is for second half ’18. Should we think about that being approximately four months past enrollment completion for your 12 weeks dosing in months to slide the data. Is that a reasonable way to think about timing?

This is a tough one that ever give precision around because it depends on how quickly you can wrap up the sites and clean up the data following the study. I don't think that's an reasonable estimate, and we are trying to clean up all loose ends as the trial progresses. But it's really difficult to put precision on there. You’ve seen previously Phase 2 trials readout data pretty quickly after completion and you’ve’ seen others take two months or more. So I don't think it would be two weeks, I don't think it would be two months. But it’s difficult to give the real type guidance there.

And just shifting over to the income statement, just from a modeling perspective. G&A was a little higher than it’s been typically at $1.8 million. Is that an anomaly or is that new rate going forward?

It’s a little higher than it will be I think moving forward. We have some compensation expenses in the first quarter. So I don't think it's going to -- I really don’t think it’s going to move much. Do you have any comment on that Mike?

No, that’s going to be tracking around that same amount. We had a couple of people beginning of the prior year and there’s no implication for that.

Our next question comes from Andy Hsieh of William Blair. Please go ahead.

The first has to do with 5211, I believe during your last earnings call, Brian, you talked about still in process in deciding how to communicate the second part, which is the 13 to 24 week data. Have you decided on whether to just put it in a forum or press release?

We do have the 24 week data. We submitted the dataset to the ASBMR, the American Society for Bone and Mineral Research, for their September conference and haven't heard back yet. But that would be the forum that we would present the full dataset at.

The other question has to do with you have two beta selective thyroid mimetics in the clinics, just out of curiosity. What makes one better to be focused on NASH and the other focused on X-ALD? Is there any difference in their propensity to induce gene expression or any color would be helpful?

This is really interesting question. So the key difference between VK2809 and VK0214 is the pro drug technology. So the pro drug with VK2809 is very selective for liver. It's cleaved by an enzyme cytochrome P453A4 that is predominantly expressed in the liver. So for a disease that evolves at liver, it seems to be more suited therapy. And that’s what drove us to really be focused on NASH with VK2809. VK0214 is also a pro drug of a completely different underlying thyroid agonist. But it’s cleaved by carboxylesterase 1 in plasma and in cytosol. So it may be somewhat more systemically available. And as a result, it might be more amenable to a more diffused disease like X-linked adrenoleukodystrophy. At the end of the day, I think both could potentially provide benefits in both settings but this is the way we have initially started to develop them.

Last question, if I may, so for the 2809 Phase 2 trial exploratory endpoints. Are you going to collect biomarker, especially fibrosis biomarkers, from these patients?

So we are collecting MCP-1, CK-18, CRP -- HSCRP, and then bone turnover markers. Those are the primary biomarkers that we’ll be collecting.

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

So given what the VK2809 study that you excluded type 2 diabetics, and those patients make up a pretty sizable proportion of the NASH population. I was wondering how applicable are these results going to be to a NASH population?

We think that the data would be very applicable to the NASH population. First of all, we’re enrolling people that have at least 8% liver fat content. And when you get up to the mid high teens 20%, 25% liver fat content, we know that a significant fraction of them have NASH. That correlation is well-established. We also know that it’s only around 40% to 50% of NASH patients have type 2 diabetes. So we would have loved to enroll them -- we’re not enrolling them, but we don't think the data will be compromised in any way. When you look at subset analyses of other studies, particularly those that have used thyroid beta receptors agonist, there doesn't seem to be any impact on efficacy as you move through disease severity. So I think all of that’s very encouraging. And if you just think of generally another settings, typically in type 2 diabetes, hypertension, hypercortisolemia, subjects that are more deranged typically respond more robustly. So we think that if we see reasonably strong data here, it's a very positive sign for what a certain population might demonstrate.

And lastly for the GSD I1 study. Do you have any additional detail on what that study is going to look like?

We don't. We’ll announce the full details when we announce the initiation of the study. But it will be a two part study. We’ll look at the biomarker after four weeks, and then we’ll look at the imaging after a longer treatment window. But we’ll have the full details in the near-term.

Our next question comes from Yale Jen of Laidlaw and Co. Please go ahead.

Just a little bit on the GST, I know you just started study and the method of action of 2809 was reduced the latent other elements. And does that potentially complement to other potential therapy in the same indications, maybe just more target to the gene percent?

We think with some of the gene therapy trial that’s also set to begin shortly. And the question that that looks like really interesting therapy the questions with any gene therapy are always safety and durability. We think that our approach should, in particular, be useful for adult patients who seem to be less well-controlled than the younger patients who under the parents’ care are much more tightly controlled. So we think gene therapy might be more applied in younger population and will build slightly older population. But I think it's really too early to say for both really. We’ll see what their look like and see what our look like, and see if there is a complementarity or any areas that one wouldn't work and the other would be applicable.

And just last question here is that in terms of 2809 for the NASH, you indicated that the patient recruitment is near completion. And do you feel that -- I mean, I just wondering there’ll be a lot of competition in terms of the recruitment, or you feel the pace is what you anticipate at the moment, at the time when you started?

The phase is definitely not what we anticipated at the beginning of the study. It has been slow the whole way it’s been slow but steady. And thankfully, we’re close to the end here. But there haven't been -- I don't think -- I mean I think competition may have had some impact, but the -- probably not that bigger a factor here.

Our next question comes from Caroline Palomeque of Maxim Group. Please go ahead.

So on 5211, I was just -- I don’t know how much you can say about your partnership discussions. But are the other potential indications, such as hip replacement or muscle lifting presenting additional partnership options, or do you think discussions are focusing on hip fracture only?

It’s really interesting. When we talk to potential partners, there are some that are very interested in the orthopedic setting. There are others that are more interested in the settings like sarcopenia, and there are others that are interested in the cachexia setting. And so it all depends on the company. But I think that the positive that we take away from that is that people recognize that the data are very compelling, and there are a number of indications that could benefit from a mechanism like stimulation of thyroid or the selective androgen receptor modulator. So we think there could be much broader opportunities than just the hip setting, and that seems to be the way the conversations are reflecting as well.

And then on 2809, so we’re expecting data in the second half. Did you say that would be in the summer time? And then if positive, what would be the next step? Do you think you’d go right into the Phase 3 trial or do you consider doing -- do you think you need to do a Phase 2b, or just what’s the plan forward after that data?

So we’ll have the data in the second half, and I don’t think that means the summer. We will plan to discuss the data with the FDA to plan out the next steps. So I think after we have the data, we’ll have a lot better idea as to what’s most appropriate next steps would be. Ideally, that would be I think type study, but we’ll have to wait until we get the data and talk with the FDA about it.

This concludes our question-and-answer session. I would like to turn the conference back over to Stephanie Diaz 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. Have a good afternoon.

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