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Is Viking Therapeutics' Stock a Buy?

By David Haen - Feb 18, 2020 at 10:54AM

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Targeting a large and growing disease state, this drug developer's stock requires patience to reap future rewards.

Viking Therapeutics (VKTX 1.63%) seeks to develop new treatments for metabolic and endocrine diseases. Lead drug candidate VK-2809 recently entered a phase 2b clinical trial at the end of last year as a treatment for non-alcoholic steatohepatitis (NASH). Viking expects to start human testing of its next drug this year for a rare neurodegenerative disease called X-linked adrenoleukodystrophy. With a market cap hovering just below $500 million, this drug developer's stock should soar on positive clinical trial results in NASH.

For those unfamiliar with the disease, NASH affects millions of people. Some reports suggest that between 3% to 12% of the U.S. population has it, many of whom are unaware. Caused by an accumulation of fat in the liver, it can lead to fibrosis (scarring) and, in some cases, cirrhosis. It often accompanies diabetes and increases the likelihood for cardiovascular disease.

A capsule opening with gold dollar signs falling out

Image Source: Getty Images

Viking's approach to NASH

VK-2809, Viking's anti-NASH drug, targets a specific type of thyroid receptor found in the liver that's believed to play a role in lipid (fat) metabolism. Based on promising preclinical and early clinical testing, Viking conducted a phase 2a trial. After 12 weeks of treatment, VK-2809 successfully lowered LDL-C, reduced liver fat, decreased the amount of proteins that can cause plaque in arteries, and appeared to have a reasonable safety profile.

These results paved the way for the phase 2b Voyage trial. Enrollment of 337 patients began last November and will continue throughout the year. While aiming to confirm the drug's efficacy, investors should be aware that very little news from the trial will come this year. The key will be to see enrollment updates. Patients will be treated for 52 weeks, so knowing when the final patient entered the trial will help gauge when the results may be expected.

NASH remains highly competitive

Over the past few years, NASH emerged as a promising and potentially highly lucrative therapeutic area. The result? Drug developers, big and small, jumped in to pursue options for this growing patient population. The market got so frothy that even Goldman Sachs (GS -1.77%) dubbed 2019 the "Year of NASH."

2019 did not live up to the hype. Gilead (GILD -0.02%) announced two late-stage trial failures for its drug selonsertib. Near the end of last year, Intercept Pharmaceuticals (ICPT -0.26%) filed for Food and Drug Administration and European approval for its drug to treat fibrosis associated with NASH. That marks a worsening of the disease, ultimately ending in cirrhosis. The FDA recently pushed back its approval decision on the drug from April until June, causing some additional anxiety for investors. This could potentially mark the first NASH drug approval.

In addition, the competitive field includes biotechs Madrigal Pharmaceuticals, Genfit, and Akero Therapeutics, as well as large pharmaceutical companies such as Eli Lilly.

Healthy finances

Drug research and development costs can be exorbitant. Viking successfully raised a substantial amount of capital, amassing $288.1 million in cash on its balance sheet as of Sept. 30, 2019. We should see the year-end results in the coming weeks for the latest update. Viking's operating expenses were only $23 million for the first nine months of 2019. Even if those expenses doubled, the company has enough money for several years. This is critical because the major value driver, the Voyage phase 2b trial in NASH, will not have results for another year. Luckily, Viking can finance itself to reach this inflection point.

Biotech investing comes with a unique set of risks, particularly for non-revenue-producing, R&D stage biotechs such as Viking. These risky stocks can generate substantial returns or wipe out entire investments. Thus, it may make sense to own a small position as part of a broader, balanced portfolio. Another way investors can gain exposure to the field is to buy a basket of NASH stocks.

Viking's phase 2a data look encouraging, and the company has undertaken the burden of conducting a late-stage trial that may be used for approval. Investors, though, will have to wait until 2021 for results. If you don't have the patience, a better buy may be one of its competitors. Patient investors can use dips in the stock price this year to buy shares in advance of the Voyage results. 

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Stocks Mentioned

Viking Therapeutics, Inc. Stock Quote
Viking Therapeutics, Inc.
$3.05 (1.63%) $0.05
Eli Lilly and Company Stock Quote
Eli Lilly and Company
$328.12 (0.29%) $0.94
The Goldman Sachs Group, Inc. Stock Quote
The Goldman Sachs Group, Inc.
$291.94 (-1.77%) $-5.26
Intercept Pharmaceuticals Stock Quote
Intercept Pharmaceuticals
$15.11 (-0.26%) $0.04
Gilead Sciences, Inc. Stock Quote
Gilead Sciences, Inc.
$62.33 (-0.02%) $0.01
Madrigal Pharmaceuticals, Inc. Stock Quote
Madrigal Pharmaceuticals, Inc.
$77.90 (-0.83%) $0.65
Genfit SA Stock Quote
Genfit SA
$3.24 (-3.57%) $0.12

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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