Viking Therapeutics: A Potential NASH Blockbuster

|
About: Viking Therapeutics, Inc. (VKTX)
by: Avisol Capital Partners
Summary

VKTX produced strong data in reducing liver fat in NAFLD patients.

They will begin a trial in NASH this year.

While a few years away from the market, the stock presents an excellent opportunity for early-stage investors.

Viking Therapeutics (VKTX), then a relatively unknown company, shot up 120% one morning in September 2018. This happened after announcement of positive topline results from a Phase 2 study of their lead product candidate VK2809 in Non-Alcoholic Fatty Liver Disease (NAFLD) and elevated LDL Cholesterol. The study achieved the primary and secondary endpoints of statistically significant reduction in LDL-C and liver fat, respectively.

The stock has kept falling from there, and today, it is trading at a measly $7+.

Some people attribute the fall to this article. This article claims, among other things, that the market misunderstood the data. The market assumed that the data, which was actually for NAFLD, was for NASH, and hence, the stock shot up.

However, firstly, the stock was already falling when this article came out, and second, if we see what management and KOLs have said, we will see there should have been no confusion over the NASH/NAFLD dichotomy. The trial was in NAFLD, but experts clearly found the data compelling for NASH patients as well.

For example, Rohit Loomba, MD, MHSc, Director, NAFLD Research Center, and Professor of Medicine, University of California at San Diego stated:

"This proof-of-concept study demonstrates robust improvement in liver fat by VK2809 versus placebo. The trial utilized a state-of-the-art method, MRI-PDFF, as a non-invasive quantitative biomarker of changes in liver fat content. Previous studies by our group have shown that a 30% or greater reduction in MRI-PDFF is associated with higher odds of histologic response in NASH. The quantum of liver fat reduction along with LDL-lowering properties of VK2809 are potentially likely to be beneficial in patients with non-alcoholic steatohepatitis (NASH) who have a significant risk of not only liver fibrosis progression but also cardiovascular disease.”

Again, Brian Lian, Ph.D., Chief Executive Officer of Viking stated that VK2809's effect on liver fat at 12 weeks appeared to exceed all other oral agents currently in development for NASH, supporting the view that VK2809 has a best-in-class profile. Based on published data from multiple studies, the company anticipates that “these liver fat reductions would result in longer-term histologic benefit. In addition, the improvement in lipid parameters observed in this study suggests potential benefits in cardiovascular health, an important consideration in this population."

It seems more prudent to assume that lack of a near-term catalyst is what is really responsible for the stock’s current misery, and that once we have more data, we shouldn’t be lingering in these zones. With that thought in mind, we will take a look at the upcoming catalysts and their potential.

Catalyst

In a press release dated 8/1/2019, Viking announced the completion of Phase 2a study of VK2809 in NAFLD, and the planned Phase 2b study, in patients who have been biopsy-confirmed with NASH. The company recently submitted a pre-IND to the FDA. Viking expects to file a new IND and initiate the Phase 2b study of VK2809 in NASH in 2H-2019. However, note that nothing is listed in the government website. This is the crucial reason the stock is down so much.

The molecule

VK2809 is an oral, selective TRß agonist. Thyroid hormone receptors are present throughout the body. TRß is expressed in liver, while TRa is expressed in the heart. This is a crucial point to understand; that this selectivity of VK2809 towards TRß helps it avoid side effects of the heart while doing its work where it is intended - the liver. Note that these mechanisms always work 100% - that is to say, selectivity doesn’t always mean 100% selectivity - but this profile is better for avoiding cardiovascular risks than a pan-TR agonist. As the company says,

“The unique properties of our TRß agonists are designed to reduce or eliminate the deleterious effects of extra-hepatic thyroid receptor activation. In particular, high tissue and TRß selectivity may lead to reduced activity at the TRa receptor, which can be associated with increased respiration and cardiac tissue hypertrophy. Selective activation of the TRß receptor in liver tissue is believed to favorably affect cholesterol and lipoprotein levels via multiple mechanisms, including increasing the expression of low-density lipoprotein receptors and increasing mitochondrial fatty acid oxidation. These characteristics in turn lead to reductions of LDL-C, plasma and liver triglycerides.”

In addition, it was shown in various animal models that these molecules "may have reduced cardiovascular effects versus thyroid hormone and other thyromimetics.” As a result of these characteristics, it is believed that these “selective TRß agonists are capable of eliciting a unique lipid lowering profile without eliciting unwanted effects on the heart and thyroid hormone axis.”

Trial results of Phase 2 study of VK2809 in NAFLD

The 12-week, Phase 2 clinical trial of Viking’s lead clinical program’s drug candidate, VK2809, in patients with NAFLD and elevated low-density lipoprotein cholesterol, or LDL-C, successfully achieved its primary endpoint. Patients receiving VK2809 demonstrated statistically significant reductions in LDL-C of 20% or more compared with placebo. In addition, VK2809-treated patients demonstrated statistically significant improvements in other lipids, including atherogenic proteins apolipoprotein B and lipoprotein (A).

The trial’s secondary endpoint was also achieved, with VK2809-treated patients experiencing statistically significant reductions in liver fat content, as assessed by magnetic resonance imaging, proton density fat fraction, or MRI-PDFF, relative to placebo after 12 weeks of treatment.

In April 2019, Viking presented new data from the Phase 2 study of VK2809 in NAFLD and LDL-C, which showed that VK2809's robust efficacy is maintained at doses as low as 5 mg daily. The entire dataset is shown below.

Placebo

(n=12)

VK2809 5 mg QD

(n=9)

VK2809 10 mg QOD

(n=13)

VK2809 10 mg QD

(n=11)

VK2809

combined

(n=33)

Median relative % change in liver fat by MRI-PDFF

-9.4%

-53.8%

(p=0.0001)

-56.5%

(p=0.0018)

-59.7%

(p=0.0004)

-56.5%

(p<0.0001)

Mean absolute % change in liver fat by MRI-PDFF

-1.1%

-8.7%

(p=0.014)

-8.9%

(p=0.013)

-10.6%

(p=0.0030)

-9.4%

(p=0.0007)

Percentage of patients experiencing ≥ 30% reduction in liver fat

16.7%

100.0%

(p=0.0002)

76.9%

(p=0.0048)

90.9%

(p=0.0006)

87.9%

(p<0.0001)

Percentage of patients experiencing ≥ 50% reduction in liver fat

16.7%

77.8%

(p=0.0092)

61.5%

(p=0.041)

72.7%

(p=0.012)

70.0%

(p=0.014)

Maximum observed reduction

52.8%

77.9%

72.4%

75.6%

77.9%

Safety

With no serious adverse events or SAEs reported in this study, VK2809 demonstrated encouraging safety and tolerability. Specifically, mean ALT was reduced in the drug arm compared to placebo, even for those with elevated ALT at baseline. Other indicators were normal. GI events were higher in the placebo group as well.

Intellectual property/patents

Viking has a huge array of patents covering their assets. Some of these are in-licensed from Ligand Pharmaceuticals (NASDAQ:LGND). It has 5 issued patents for TRß agonists and 32 pending ones. Patent coverage extends from 2025 to 2039 in various jurisdictions.

Financial highlights

Viking's cash, cash equivalents and short-term investments totaled $292.6 million as on 6/30/2019. Expenses for the six months ending 6/30/2019 were $16.375 million, which included $11.8 million for research and development. The company has very little short and long-term liabilities, totalling no more than $11 million. All this means that the market is basically valuing this almost phase 3 ready drug candidate with successful related phase 2 data at only $200 million. There are failed companies with higher valuations than this.

Here’s a look at how institutional investors have taken positions in VKTX recently.

Q1 2019

All Institutions

Hedge Funds (from public filings)

Filers who had this stock in their top 10:

1

2 (0.2%)

13F Filers holding this stock:

161

28 (2.85%)

Aggregate 13F shares on 03/31/2019:

45.789 Million

12.587 Million

Aggregate 13F shares on 12/31/2018:

47.012 Million

11.326 Million

Percent change:

-2.60%

11.13%

Funds creating new positions:

23

7

Funds Adding to an existing position:

59

10

Funds closing out their position:

28

7

Funds reducing their position:

46

8

Of the 12 insiders, only three hold the company's stock. President and CEO Lian Brian holds 1,560,152 shares awarded in January 2019. Chief Development Officer, Masamune Hiroko holds 141,063 shares awarded in January 2019. 10% owner Ligand Pharmaceuticals Inc. has 6,038,083 shares. Ligand sold 262,881 shares in September 2018 for a price of $19.15.

Competition

Viking is often compared with Madrigal (MDGL) - we discussed this topic last year. MDGL was then a $4.4bn market cap, while VKTX was $700 million. Today, VKTX is $522 million, while MDGL has fallen to $1.37bn. Despite its relatively more advanced stage, something is probably not right with MDGL.

Conatus (CNAT) was another overhyped contender in the liver space. However, the company suffered a huge setback and poor data.

Intercept (ICPT) has the most advanced liver drug in obeticholic acid. However, it is not approved in NASH, but in primary biliary colitis or PBC. A NASH trial is in phase 3 - however, the drug’s safety issues are a concern.

NASH is a very diversified market, if only in pipeline. There are about 50 candidates in various stages of Phase 1 to 3 trials. There is a large big pharma footprint here - including Gilead (NASDAQ:GILD), Novartis (NYSE:NVS), Allergan (NYSE:AGN), Bristol-Myers Squibb (NYSE:BMY), and so on. However, there’s also small pharma lineup, among which Viking sits at a comfortable third or fourth in terms of development, right behind ICPT, Genfit (NASDAQ:GNFT), and MDGL. Galectin may be another strong contender as well.

Market

Nonalcoholic fatty liver disease is increasingly common around the world, especially in Western nations. In the United States, it is the most common form of chronic liver disease, affecting an estimated 80 to 100 million people. [source: Mayo Clinic]

A steady-state prevalence model from 2016 quantifies the costs involved in NAFLD. Annual direct medical costs of about $103 billion were projected at $1,613 per patient, assuming over 64 million patients having NAFLD in the U.S. [source: NCBI]

Risks

VKTX is going through a catalyst desert right now. Phase 2b trial - in NASH - is to begin sometime later this year. Until the market sees biopsy-verified NASH patients benefiting from the drug, the stock will not show much progress. And this is going to be at least a year away, possibly more. This is the greatest current risk of VKTX, and also the best opportunity.

The other risk, like we discussed just now, is the well-diversified market with many potential drugs in the pipeline. However, this is a giant market, and if a $500 million company can produce a strong drug candidate, market will not be a problem from this market capitalisation onwards. If the company were to be a $10bn concern, that would be a different issue. But right now, the market competition is nothing compared to the company’s lead.

The company has adequate cash, and there are no other specific risks surrounding VKTX.

Opinion

VKTX is trading in the low $7s right now and presents a very interesting opportunity to investors to take a position in a promising NASH drug candidate with a long-tailed pipeline. If the company starts the new phase 2b trial, this stock will shoot up. Given its cash position and trial data, there’s no reason - barring absolutely criminal ones - why that would not happen anytime soon.

Disclosure: I am/we are long VKTX. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.