Viking Therapeutics: Another Year In Review

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Bumbershoot Holdings
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Summary

  • Recently announced Q2'20 financial results and provided key updates on development timelines.
  • Filed IND for VK0214 in X-ALD. Expect to commence Phase 1 dosing study in healthy volunteers.
  • Continuing enrollment in VK2809 Phase 2b VOYAGE study. Investors may be underestimating the sentiment shift back towards liver fat reduction.
  • Significant developments within the NASH market as multiple competitors and competing mechanisms of action have fallen by the wayside due to trial failures. Thyroid-beta agonist class remains unscathed.
  • Company remains well-capitalized with over $260m of cash to fund operations through multiple data milestones.

Introduction

It’s closing in on almost 3-years since I first published my initial write-up on Viking Therapeutics (NASDAQ:VKTX) back in Oct-2017. I’ve had plenty to say about the company since that time, publishing numerous other articles along the way, but more recently I’ve been quiet about it; and it’s actually almost a year-and-a-half since I last commented with “Year in Review” as a public update. COVID has had a funny way of distorting time and frankly, there just hasn’t been that much to add to the conversation since it entered a “data desert” after delivering positive Phase 2 results in late 2018. With its most recent Q2 earnings release behind it, along with plenty of other goings-on in the NASH landscape, it now finally feels like the right time to provide another update.

VK5211 / SARM

First though, I just want to take a minute to look back over Viking’s selective androgen receptor modulator (SARM) program, VK5211. I’m not sure whether it’s been formally/directly addressed in any of the various conference calls or analyst notes, so I’m just going to piece it all together right here in one place, because my initial report—Welcome to the Glorious House of Gains—laid claim to significant potential value for the molecule; and while I’d mentioned that VK2809/NASH was likely to be the molecule/market that most investors were most focused on (and for good reason), Viking’s SARM program was still front and center.

So, what happened? Because over 2-years removed from extremely positive Phase 2 data and after giving various presentations at conferences like ASBMR, etc. … there is essentially nothing to show for it.

The simplest way to explain what happened is that the game has changed. The FDA made it clear that an “approvable endpoint” for a Phase 3 trial would require showing a functional benefit, rather than just an increase in muscle mass. This makes it more challenging to design a trial with confidence since it becomes nearly impossible to account for the uncontrollable aspects of such things like a patient’s willpower to push forward, etc. Management had called out an important “dose-related improvement” in various functional endpoints (6-minute walk test, etc.) when it read out Phase 2 data – but to have a study be “powered” and reliant on those metrics from a standpoint of statistical significance is something quite different. You’re not just relying on the drug at that point – it’s also incorporating the qualitative aspect of who a patient is that can determine whether they perform a little weaker/stronger. This risk of an outsize “placebo effect” seemed to be what derailed GTx (formerly GTXI) from showing statistical significance in their analogous trial of Enobosarm for women in stress urinary incontinence (SUI). This aspect likely limited partner interest and effectively stifled progress, since the company committed to partnering the drug as the only path forward.

I’m not sure this type of standstill is what the FDA had in mind as a goal, since nothing else to date about the drug’s efficacy profile and/or the significant unmet need to address that hip fracture indication/medical outcome in the elderly population has changed… but yet, here we are. Similar to the “can’t fight the Fed” mantra… it seems the FDA works in a similar manner. Progress for the molecule was effectively halted; and the path to higher value along with it.

While it would not be too late to get it back on track, with either the FDA going back on that decision and/or Viking finding a more willing partner to take on the risk (at the right price)… realistically I just do not see either of those happening, at least not in the short-term. And the longer it waits, the more likely the value is to atrophy.

While this in no way makes the molecule worthless, there are clear reasons it has been deemphasized by management and the company’s analysts. Personally, I’d love to see the company still forge ahead with the molecule on its own— after all, it has the cash to run a trial and in my opinion the strength of the drug would provide more than enough ‘signal’ to compensate for a more qualitative trial design – but that’s just not going to happen. And you can’t underwrite something that isn’t likely occur just because you think it should. That type of wishful thinking is called fantasy.

If VK5211 were the only molecule in Viking’s portfolio, then perhaps things might be different. But as it stands, the company has set its sights on larger targets with the NASH market and the more recent VK0214 IND. And that’s that.

VK0214 / X-ALD

Next, we move to Viking’s rare disease program to target a genetic disorder known as X-linked adrenoleukodystrophy (X-ALD). Based around the company’s VK0214 molecule, this program is finally starting to show some positive movement. I can’t say how/when this might translate into people becoming excited about the company again, but I do know that it’s not for nothing.

While I don’t assume anything from VK0214 as a significant factor in my investment thesis, at least not in the near-term; it is a factor that could become quite material over time. I don’t want to get ahead of the company or add any hype to the program, but it is definitely something investors should choose to pay close attention to as it continues to mark further progress.

The reasons to pay close attention are simple:

  1. much quicker timeline to a potential registration trial/approval, and
  2. the science that has been published to date.

In terms of the timeline, the company has now formally filed its IND as of the most recent quarter. So, it’s officially out the gate. An initial phase 1 dosing study in healthy volunteers that is likely to take ~6 months can now commence. The company can then use that to quickly move into a 4-week patient study, presumably sometime early next year; and while not exactly tomorrow, that puts it on track for a meaningful data readout on the potential success of the ABCD2 gene by sometime later in H1’21, with the path to a full registration trial starting soon after that. While there are many other variables that I’m glossing over, this could put real points on the board for a development stage company sorely in need of a wake-up horn. Berrdurrr.

Source: Google Images

(Source: Google Images)

The science provided to date has also seemed fairly compelling. While this article will not be a deep dive into the X-ALD disease, at its most basic level it centers around the idea that symptoms become expressed due to the presence and accumulation of very-long chain fatty acids (VLCFA), which at a certain level become toxic. A mutation in the ABCD1 gene is typically responsible for transporting VLCFA away for disposal; and so, the VK0214 compound stimulates expression of the ABCD2 gene, which in theory can take up the job, thereby reducing the accumulation and directly/indirectly halting progression of the symptoms.

While obviously oversimplified, that is the goal; and all early indications have been promising, hence why it moved ahead with the IND. There is also budding interest around that connection between VLFCA and X-ALD so that should only increase as it appears closer to establishing that correlation.

VK2809 / NASH

Last, we come to Viking’s NASH program with VK2809. The main event. Oh boy.

A lot has happened since I provided my last update on the market, as the development landscape has changed dramatically. This has primarily stemmed from a tremendous amount of failure with many of the key players having fallen by the wayside. On some level, this is excellent news for Viking, as it eliminates competitive threats from other “mechanisms of action” (discussed in a follow up report Hallmark Moment). The downside of course is that it highlights that NASH truly is a complex metabolic disease that has burned an increasing number of investors across the biotech landscape. This has undoubtedly soured investor sentiment and has turned what was once the hottest, shiniest new investment area in biotech into something of a dumpster fire. So, a quick recap:

CymaBay Therapeutics (CBAY)

Announced in late 2019 that its key compound, seladelpar, had failed in a mid-stage study. Its stock was swiftly taken out back and shot; and while it has performed somewhat of a surprise resurrection—being raised from the dead on a pivot to bile duct disorder (?) after the FDA lifted a clinical hold… as far as NASH is concerned, it’s done.

GENFIT (GNFT)

Échouer. Sacre bleu! Despite plenty of optimism, the French drug maker joined the NASH graveyard after it announced that its main compound, elafibranor, had failed to meet endpoints in its late-stage trial this past May. The RESOLVE-IT study was then formally discontinued just a couple of weeks ago. This was another big swing-and-a-miss for the PPAR mechanism of action which it shared with CymaBay. The company appears to be planning a pivot towards primary biliary cholangitis (PBC) along with maybe some other indications… so with interest rates near zero, perhaps it too can rise from the dead. But it no longer belongs on the NASH radar.

Galmed Pharmaceuticals (GLMD)

I haven’t seen much written about the Israeli-based, Galmed, since its primary compound, Aramchol, failed to “ARRIVE” in an HIV/NAFLD study. Its ARREST study in NASH did seem to at least “achieve a regulatory endpoint” though and so it had used that to roll into a Phase 3 ARMOR study, which continues as planned. All of the data it had initially used to raise capital though had never been that solid to begin with, so still in the ballgame, but count me out as a believer.

Galectin Therapeutics (GALT)

Another failure, at least for the most part. To be honest, I haven’t kept track with this one as closely as some of the others, but it now seems to have “failed” multiple trials, multiple times, only to then point out some specific subset of the data that might be worth pursuing. Perhaps it’s still game as a combination therapy; and there are probably other investors that can provide a better indication of where the company currently sits today, but from my vantage point it has exited the main stage.

Gilead Sciences (GILD)

Poor old, Gilead. The company just can’t seem to get out of its own way when it comes to NASH. It has endured a seemingly endless string of failures the past 12-18 months for its selonsertib, firscostat and cilofexor compounds through its ATLAS and STELLAR studies; although in fairness, it never really seemed to have its heart in it.

While the company remains committed to becoming a major player in the NASH market—it never promised to get there with its own compounds. Current performance is still predominantly in the HCV & HIV markets, so while oncology, rheumatoid arthritis, NASH, etc. may be the future of the company – they have very little bearing on how it exists today. Gilead also seems to have been a victim of the NASH pendulum swinging way too far towards the fibrotic side of the disease. As this begins to shift back towards liver fat reduction, Gilead should have no problem rebuilding its pipeline; and I do still believe it eventually gets there to become a global leader in management of the disease.

In fact, I’ve said it before and will formally stake a claim on it again – I’m convinced that Gilead may someday be the right suitor for Viking, with the only part of that equation that doesn’t make sense being why wait. The more you wait, the higher the price. That’s what Viking’s bankers should be emailing every potential strategic partner every O’day.

Source: StockTwits

Source: StockTwits

Intercept Pharmaceuticals (ICPT)

Intercept is the latest blow up after announcing just a little over a month ago that it received a CRL from the FDA in its study of compound Ocaliva. I’d half joked in the “greeting cards” section of Hallmark Moment that it needed to keep its head up and blood pressure down – and that does appear now to be the reality with cholesterol/blood pressure seeming to be one of the key questions holding back the farnesoid X receptor (FXR) class, even though technically the study did meet met the endpoints. This is a legitimate health concern for a long-term dosing medication to a patient population with metabolic syndrome. I’m not making any specific calls on Intercept as a company, or whether it will re-file a response to the CRL, or what it has going on in primary biliary cholangitis (PBC), etc.… but in my opinion, I don’t see it having a future in NASH.

The Four Norsemen – NGM, Akero, Madrigal and Viking

I know I’m skipping a few—Inventiva, Eli Lilly, Terns Pharmaceutical, 89bio, etc. But based on development timelines and side effect profiles the market is basically down to four key players: NGM, Akero, Madrigal, and Viking. It’s not necessarily going to be a winner-take-all situation, as the NASH disease is complex and ubiquitous enough to sustain multiple successful treatments.

NGM Biopharmaceuticals (NGM) and Akero (AKRO) are relative “newcomers” to the story, as neither one had really popped on the scene until their IPOs in mid-2019, respectively. Since coming public though, they have been making waves with compounds previously licensed from big pharma – NGM’s aldafermin from Pfizer and Akero’s AKR-001 from Amgen. The science from early-mid-stage trials has been solid, helping to refocus the market back on liver fat reduction; and both are now supporting healthy market caps as a result. Neither is ready to be crowned victorious though. Both company’s drugs are injectables, as opposed to orally administered drugs, which would seem to create a much tougher path to mass adoption, particularly if it were to come head-to-head against an oral drug of similar efficacy. NGM’s drug has also been shown to raise LDL cholesterol. While this was able to be controlled and brought back to baseline in the company’s ALPINE study through concomitant use of statins, it may be part of the same long-term side effect profile that derailed Intercept’s drug from FDA approval.

Madrigal (MDGL) continues to just do its thing. It is simultaneously running two Phase 3 trials, MAESTRO-NASH and MAESTRO-NAFLD-1, to study its main compound, resmetirom in NASH/NAFLD indications. The company’s timeline remains about 1+ year ahead of Viking, which potentially paves the way for additional validation of the TRb agonist class. As discussed in Hallmark Moment, the question of correlation vs. divergence between Madrigal and Viking’s compounds remains a key, but at this stage given all the failure among the other classes—that time has not yet come. What’s good for Madrigal is still good for Viking.

VOYAGE Study

As for Viking, it finally announced the initiation of its Phase 2b VOYAGE study in Nov-2019 to evaluate patients with biopsy confirmed NASH. The trial has been slowly enrolling ever since, but with one pushout in the timeline already announced in Q1. The primary endpoint of the study is a 12-week change in liver fat content as assessed by an MRI-PDFF – same as the Phase 2a. There is then a more important secondary endpoint, measuring histological changes in the liver after 52-weeks of treatment as assessed by a liver biopsy.

Management currently expects to complete enrollment by H1’21, which would peg the primary data endpoint of liver fat reduction to be available a few months after that. While this readout seems to be getting glossed over – since why should investors really care about data that was already “proven” in the first Phase 2 trial – I don’t think investors are right to sleep on it; and it might be the largest factor being discount in Viking’s stock. While it essentially just the same data from Phase 2a, but as part of a larger study, there is a pendulum swing happening in the NASH market as the industry comes back around on 1) effect of liver fat reduction on NASH resolution / NAS score improvement and 2) accuracy of MRI-PDFF as non-invasive test.

Both of these are incredibly important; and in my view we may look back at this entire Phase 2b trial in a couple of years with some amazement that Viking ever even needed to run it in the first place. The results seem obvious to the extent that someone believes that a reduction in liver fat content does indeed have an effect on limiting the disease and that a reduction in liver fat as measured by an MRI-PDFF would correlate to an effective measure from lengthy, expensive, invasive histological data. This also seems obvious to me and in many ways, I view this Phase 2b trial as having as much to do with verifying the accuracy of non-invasive testing as it does with efficacy in NASH. That was already proven to some extent. MDGL showed the link between TRb agonist class and liver fat reduction. Viking helped further validate this connection with its Phase 2 data; and numerous other companies seem to be showing that liver fat content is absolutely correlated with progression of the disease. Madrigal has also already shown the link between that liver fat reduction as assessed by an MRI-PDFF and from a biopsy – the “gold standard.” And while Viking needs to get there from a regulatory perspective, it may not need to wait from a sentiment perspective as people come to realize that the heavy lifting already seems done.

As a reminder, the FDA established fairly clear guidelines on NASH endpoints that provide two pathways towards an approval. One is an improvement in steatohepatitis, as defined by the NAS score, with no worsening of fibrosis. Second is the inverse – an improvement in fibrosis with no worsening in associated steatohepatitis. Investors had initially gravitated towards that fibrotic benefit, but it seems to have gone way too far in that direction, especially after all the recent failures. Investors hadn’t been giving proper credit to liver fat reduction as there had been a lot written about late stage vs. “preventative” care. That view seems to be dissipating though, which is probably the most exciting development in the market, even though it is not held to any specific timeline from a trial.

As far as the actual secondary data is concerned, that readout will take time as it needs to complete full 52-week dosing on the remaining patients. But given the shift in sentiment already happening back towards liver fat reduction, by the time the cards flip over on the histological data it might already be an expected outcome, with the stock trading materially higher and the speed at which it could move into a Phase 3 trial being rapid. To the extent Viking’s management and the market develop greater conviction in that correlation it can even go as far as to begin preparing for the trial ahead of time with dollars at risk to bringing manufacturing up to speed, etc. prior to the data release.

Summary

To finish off, it might be helpful just to keep a bit of perspective.

As frustrating as the past 12+ months have been, Viking’s shares are still up by 500%+ from a starting point of ~$1.20/share back in mid-2017. So, while it may not feel like it every day – the stock is still a big winner. Viking’s story is also a long way from being over as many more questions will need to get answered and new ones undoubtedly arise over time. That is the nature of the game. But at a high level, nothing has really changed all that much in terms of its progress. The story is still as promising as ever – it’s just waiting on time to prove that from a statistical significance perspective. And that is why I still believe Viking to be my best chance at capturing the elusive “100x bagger” to a valuation of $3.5b from a market cap perspective.

In the meantime, the company is properly funded to reach multiple data readouts; and that has always been the biggest risk at this stage in the story. To go back to my initial wording:

It would be wrong to minimize the “in-between” period since it is both hugely important & unanalyzable in its effect on residual equity value for current shareholders. The only known piece in the equation is that the higher Viking’s stock price is over the next 6-12 months, the more flexibility it will afford it going forward; and the better chance it has to capture a greater percentage of that terminal value for owners without dilution.

That has been the case and still rings as true as ever. I'm excited to see where it goes from here.

This article was written by

Bumbershoot Holdings profile picture
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Bumbershoot Holdings L.P. is a private investment partnership launched in Oct-2015.The partnership uses a fundamental investment strategy as a “quality over quantity” approach to identifying and evaluating great businesses. It primarily invests in small- and mid- capitalization public companies which are headquartered in the U.S. and listed on a domestic exchange. It maintains a relatively concentrated portfolio with approximately 60%-75% of assets in its top-15 holdings. The partnership utilizes low levels of leverage and hedges net long exposure through various short positions and equity derivatives, as dictated by overall market conditions.
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Disclosure: I am/we are long VKTX, GILD. 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.

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