Viking Rises 25% in a Month: Should You Buy or Wait?

Shares of Viking Therapeutics VKTX have soared nearly 25% in the past month, all thanks to progress with its investigational obesity and non-alcoholic steatohepatitis (NASH) candidates, which management plans to advance to late-stage development by early 2025.

Last month, alongside its second-quarter earnings results, VKTX reported that it had received feedback from the FDA regarding the next steps in the developmental pathway for the obesity drug VK2735. Based on such feedback, the company is gearing up to advance VK2735 into phase III development for obesity. Before beginning this study, management is scheduled to meet with agency officials before this year's end to discuss the study design and timing. It also plans to hold another meeting with the FDA during the fourth quarter to discuss the late-stage study design for NASH drug candidate VK2809.

These positive pipeline updates were the reason for triggering this upside. In the past month, the stock has outperformed the industry's 4.0% growth. During this timeframe, the stock has also outperformed the sector and the S&P 500. The company's shares are also trading above the 50-day and 200-day moving averages.

VKTX Stock Outperforms Industry, Sector & S&P 500

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Before we take things further, let's take a brief look at the factors governing the company's future prospects.

Obesity Drug Development Encouraging

In the past few years, the obesity market has been attracting investor attention thanks to the encouraging phenomenal sales performance of obesity drugs Zepbound and Wegovy which are marketed by pharma giants Eli Lilly LLY and Novo Nordisk NVO, respectively. As a result, both companies are enjoying a share price surge from investors.

Though it does not have any marketed drugs in its portfolio, VKTX is one of the few biotechs that has shown immense potential in the obesity space, all thanks to the treatment potential of VK2735. The drug, which is being evaluated as a subcutaneous injection and as an oral pill, has demonstrated superior weight reduction in clinical studies.

In February, management reported that the phase II VENTURE study, which evaluated the SC formulation of VK2735, achieved its primary and all secondary endpoints with statistical significance. Patients treated with the SC formulation achieved a mean weight reduction of 14.7% after 13 weeks compared with 1.7% in the placebo group. In March, the company reported data from the early-stage study on the oral formulation of the drug, which demonstrated promising dose-dependent reductions in mean body weight after 28 days of daily dosing.

While management is making preparations to advance SC formulation to late-stage development, it also intends to start a mid-stage study on the oral formulation of the drug in obesity patients before 2024-end.

Per research conducted by Goldman Sachs, the obesity market in the United States is expected to reach $130 billion by 2030. This is evident from the fact that despite raking in billions from sales of their respective obesity drugs, Lilly and Novo are still unable to cope with existing demand. The firms are not only investing heavily to optimize their respective production capacities but have also started evaluating multiple other novel obesity candidates.

NASH Drug Shows Promise

Viking Therapeutics recently completed the VOYAGE study, which evaluated VK2809 as a potential treatment for patients with biopsy-confirmed NASH.

The study achieved its secondary endpoints of histologic changes assessed by hepatic biopsy after 52 weeks of treatment with VK2809 when compared with placebo. Overall, 40-50% of patients who received VK2809 achieved NASH resolution(meaning the disease symptoms disappeared) and at least a one-stage improvement in fibrosis. In contrast, only 20% of patients who received a placebo achieved similar results. The study previously achieved its primary endpoint — patients who received VK2809 achieved a statistically significant reduction in liver fat content following 12 weeks of treatment.

Based on the above study results, we believe that the drug could rival Madrigal Pharmaceuticals' MDGL Rezdiffra, which the FDA approved in March 2024 as the first-ever NASH drug. It was commercially launched by Madrigal in April.

Management is also looking for a partner to further develop and market the drug.

Stiff Competition in Targeted Markets

While we acknowledge that Viking Therapeutics' pipeline candidates have demonstrated encouraging results in clinical studies, the company faces stiff competition in its targeted markets. The company's obesity candidate will compete directly with pharma big-wigs like Eli Lilly and Novo Nordisk, who have either marketed drugs in this space or are developing their respective candidates in clinicalstudies. Other large-cap pharma/biotech companies like Roche, AstraZeneca, Pfizer and Amgen are also developing their drugs in the obesity space. All these companies have a well-established distribution and supply chain infrastructure in place.

Stock Valuation & Estimates

The company is trading at a premium to the industry. Going by the price/book ratio, the stock currently trades at 7.74, trailing 12-month book value, higher than 4.67 for the industry and the stock's mean of 2.04.

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Estimates for Viking Therapeutics' 2024 loss per share have narrowed from $1.08 to 99 cents in the past 30 days. Over the same timeframe, loss estimates for 2025 have widened from $1.42 to $1.48 probably due to an increase in the company's R&D costs to support pipeline expansion.

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Conclusion

Though Viking is trading at a premium to the industry, we recommend investors looking for growth stocks to add this #3 Ranked ticker. Both obesity and NASH markets have demonstrated robust potential for growth. The company's accumulated cash balance of around $942 million (as of June 2024-end) also ensures that management can sufficiently fund its day-to-day operations, including late-stage pipeline programs. Given the success obtained by Viking in pipeline development, it could also be eyed as an attractive acquisition target by big pharma.

For those who already own the stock, multiple catalysts could trigger share price movements, like pipeline advancements, data from these studies and even potential drug approvals. These should keep such investors vested in the stock.

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