Relatively small biotechs can see their shares soar -- sometimes significantly -- following positive clinical or regulatory news.
That's what has happened this year to Viking Therapeutics (VKTX 4.87%), a mid-cap biotech, with its stock price up by nearly 300% since January. Madrigal Pharmaceuticals (MDGL +0.12%), another mid-cap drugmaker, hasn't been so lucky in 2024 despite hitting an important milestone; its shares are up by a much less impressive 7% year to date.
That said, Viking and Madrigal are still early in the game. Both could be just at the beginning of their growth journeys. Which one looks like the better option for long-term investors right now? Let's find out.
NASDAQ: VKTX
Key Data Points
The case for Viking Therapeutics
Viking Therapeutics focuses on developing treatments for metabolic diseases. The company's leading program, VK2735, is a potential weight loss medicine.
This area of medicine has risen in popularity lately with the public and on Wall Street. There is a good reason: Obesity treatments are the new big thing in the biotech industry. Sales of these medicines are projected to skyrocket in the coming years. Even though larger players like Novo Nordisk are likely to dominate, Viking is looking to make a dent in the field.
VK2735 reportedly produced excellent results in a phase 2 study, helping patients suppress hunger. In the trial, VK2735 led to a 13.1% mean reduction in weight at the highest dosage after 13 weeks of treatment, compared to a placebo. The medicine's safety profile seemed reasonable as well. No wonder the market is excited about this medicine and the company developing it.
Though there is still a long way to go, Viking has several other pipeline programs. It is working on a potential therapy for the liver disease non-alcoholic steatohepatitis (NASH), another highly promising area. Viking's NASH candidate, VK2809, is undergoing a phase 2 trial. The biotech plans to release data from this study during the first half of the year.
Positive results could be yet another catalyst for the company, which took advantage of its soaring share price to raise $632.5 million in gross proceeds in a secondary stock offering.
The company also ended 2023 with $362 million in cash after having spent $100.8 million on operating expenses in 2023. The company likely has enough money to last more than two years. If its obesity and NASH programs pan out, it could deliver more market-beating returns.
NASDAQ: MDGL
Key Data Points
The case for Madrigal Pharmaceuticals
Madrigal Pharmaceuticals recently launched Rezdiffra, the first medicine (and so far the only one) approved by the U.S. Food and Drug Administration (FDA) for NASH. Though plenty of other biotechs have been working on this project -- including several with much greater resources than Madrigal -- the company got there first, an important milestone.
The FDA is not requiring that patients get a liver biopsy before receiving a prescription, making the once-daily oral treatment Rezdiffra an accessible medicine and the only one of its kind for NASH patients. Madrigal will initially target 315,000 patients. Rezdiffra costs about $47,400 per year (without insurance, discounts, or other cost-reducing programs).
Management is looking at a large opportunity here. One knock against the company is that it has no other candidates in its pipeline. It could be problematic if it becomes too reliant on just one medicine. Still, Madrigal has proved its innovative capabilities and ability to cross multiple clinical and regulatory barriers to launch an important product on the market. Management likely will seek to create newer medicines on the back of this success.
Meanwhile, the company is also running a secondary stock offering that it expects will yield gross proceeds of about $600 million. It had $634 million in cash and equivalents as of the end of 2023.
The company spent $380.5 million in operating expenses last year. With Rezdiffra hitting the market -- and with no other major ongoing clinical trial (the benefit of having just one product) -- funding shouldn't be an issue. Madrigal could be a winner in the long term, especially for investors who get in now.
The verdict
Despite still working on advancing its leading program to phase 3 studies and not having a single product on the market, Viking Therapeutics has a market capitalization of $7.5 billion, higher than Madrigal's $5 billion. Viking's VK2735 looks very promising, but if it fails to produce the results investors hope for in future trials, the biotech's shares will drop off a cliff.
That makes Viking the riskier option when compared to Madrigal which, despite not having a deep pipeline, already has an approved product that is almost certain to cross $1 billion in sales per year. Viking has far more upside potential, so more aggressive investors might prefer it over Madrigal. But the latter has far less downside possibility, so risk-averse investors should opt for Madrigal Pharmaceuticals out of the two.
