Viking Therapeutics (VKTX -0.69%), a small-cap biotech, has been on quite the ride over the past few months. Thanks to a positive late-stage trial in nonalcoholic steatohepatitis (NASH) from rival Madrigal Pharmaceuticals (MDGL -3.08%) last December, and a strong showing for its experimental obesity treatment VK2735 in a small early-stage study yesterday, Viking's shares have ripped higher by a jaw-dropping 463% over the prior six months.

VKTX Chart

VKTX data by YCharts

The truly astonishing part to this story, though, is that Viking's stock might still be incredibly undervalued. Here's a quick overview on why this sizzling growth stock may increase tenfold before year's end. 

Two massive commercial opportunities lie ahead

What's all the fuss about? Viking expects to announce top-line data for its ongoing phase 2B biopsy-confirmed NASH trial by midyear. The drug in this trial, known as VK2809, has a highly similar mechanism of action to resmetirom, Madrigal's NASH candidate.

The back story is that resmetirom became the first drug to navigate late-stage testing in this increasingly common liver condition, without equivocation, late last year. In effect, the top-line results from this study strongly indicate that it is both safe and effective in this setting, a bar that has proved elusive in trials of other NASH candidates. Madrigal, in turn, plans on filing for resmetirom's approval with the Food and Drug Administration later this year. 

The big deal is that this untapped drug market has been estimated to be worth anywhere from $30 billion to $50 billion per year. The NASH market, as a result, is easily large enough to support multiple blockbuster medications.

So if VK2809 can replicate resmetirom's success, or perhaps even surpass it because of its differentiated chemistry, Viking's stock will almost certainly go parabolic. Underscoring this point, Madrigal's market cap is nearly four times as high as Viking's as of this writing, implying that a sizable valuation gap may exist with this small-cap biotech.  

A piggybank taking off like a rocket.

Image source: Getty Images.

Viking isn't done, however. The biotech's early-stage obesity data released yesterday caused its shares to gap up by nearly 70% in a single day. Wall Street is excited about the company's experimental obesity medication because it also represents another billion-dollar, perhaps multibillion dollar, commercial opportunity. 

Now, VK2735 is well behind several other drugs in development for obesity from industry titans such as Amgen (AMGN -0.86%) and Eli Lilly (LLY 1.85%), among others. In fact, Novo Nordisk's (NVO -0.54%) injected drug Wegovy is already on the market for this indication. As with NASH, though, the obesity space is so significant that it could also easily support multiple FDA-approved medications. Viking, however, may have an ace up its sleeve. 

Yesterday, the company announced that it plans on trialing an orally administered version of VK2735, with top-line results expected out in the back half of 2023. As an oral therapy, VK2735 might have a significant competitive advantage of injected therapies from the likes of Amgen, Lilly, and Novo Nordisk. 

How can Viking stock increase tenfold by year's end?

Cutting to the chase, Viking is perhaps the most obvious buyout candidate ever in biopharma. The company is developing two potential megablockbusters with differentiated clinical profiles. Yet it is being valued -- even after this blistering northward move -- like a company with middling commercial prospects. Its current market cap is $1.21 billion. That's an unheard-of value proposition in biopharma, quite frankly.  

Who might be a suitor? Pfizer, Bristol Myers Squibb, and Gilead Sciences have all attempted to develop NASH drugs in the past with little to show for it. What's more, all three of these biopharma heavyweights have the financial firepower to acquire Viking with ease.

That being said, Pfizer's recent $43 billion acquisition of cancer specialist Seagen might keep it on the business development sidelines for the remainder of the year. Pfizer, after all, will have a lot of work to do to successfully integrate this new asset.

Moreover, Gilead has repeatedly been stung by costly business development deals that went haywire in the fairly recent past -- a fact that might give management pause when it comes to engaging in a possible bidding war for Viking. 

That leaves BMS. Wall Street analysts aren't wholly convinced the drugmaker has done enough to overcome the challenges presented by the patent expiry for cancer drug Revlimid or the upcoming loss of exclusivity for Eliquis and Opdivo in the waning part of the decade. If Viking gets a win in NASH and another win for its oral version of VK2735, this tiny drugmaker could fill some of these holes in BMS's value proposition. 

Bottom line: Viking has a realistic pathway toward a $12 billion-plus valuation by the close of 2023, depending on the outcomes of VK2809 in NASH, VK2735 in obesity, and interest from possible suitors. That said, clinical trials are always an inherently risky endeavor -- meaning investors shouldn't buy this stock unless they are comfortable with risk.