Shares of Viking Therapeutics VKTX have lost nearly 22% in the past six months, significantly underperforming the industry’s 5.3% decline. The stock also underperformed the broader Medical sector and the S&P 500 during this timeframe, as shown in the chart below. VKTX’s shares are currently trading below the 50 and 200-day moving averages.
VKTX Stock Underperforms Industry, Sector & S&P 500
Image Source: Zacks Investment Research
Though this biotech’s progress with its obesity drug has been encouraging, the rising competition for developing obesity drugs is a major reason behind this decline. The downfall in stock price began after AstraZeneca reported early-stage data on its experimental obesity drug, which helped achieve 5.8% weight loss after four weeks of treatment in patients with type II diabetes. Also, the obesity space has a new major entrant, Merck MRK, which recently secured a licensing deal for an investigational weight-loss drug developed by China-based Hansoh Pharma.
Adding to these challenges is the major downturn in the broader drug/biotech sector due to lower-than-expected third-quarter results, guidance cuts, pipeline setbacks, and Trump’s decision to nominate vaccine skeptic Robert F. Kennedy Jr. to run the Department of Health and Human Services. These factors have negatively impacted nearly all companies in the sector.
Let’s delve into the company’s strengths and weaknesses to gain a better understanding of how to play the stock amid the price fall.
VKTX’s Progress With Its Obesity Program Encouraging
The obesity market has garnered much interest lately, with two companies, Eli Lilly LLY and Novo Nordisk NVO, dominating this space with their respective obesity drugs Zepbound and Wegovy. Per a research conducted by Goldman Sachs, the obesity market in the United States is expected to reach $100 billion by 2030. This is also evident from the fact that Lilly and Novo are investing heavily to optimize their production capacities and have started evaluating multiple other novel obesity candidates.
Viking is one of the few biotech stocks that have shown immense potential in the obesity space. The company is developing VK2735 as a subcutaneous (SC) injection and an oral pill in mid-stage and early-stage studies, respectively.
VK2735 has shown blockbuster potential, demonstrating superior weight reduction capabilities across both clinical studies. In November, Viking presented updated results from the phase I study on oral VK2735 at the ObesityWeek 2024 Annual meeting, which showed that patients who received the highest drug dose lost up to 8.2% in body weight after 28 days of daily dosing compared with 1.4% in the placebo group. In February, management reported that the phase II VENTURE study, which evaluated VK2735 SC, achieved its primary and all secondary endpoints with statistical significance.
Based on the above results, management plans to meet the FDA to discuss the late-stage study design for the SC version of the drug and start a mid-stage study on the oral formulation shortly. It also plans to evaluate once-monthly dosing of VK2735 SC in a future clinical study.
Like other obesity drug makers, Viking is not just limiting itself to one obesity drug. Management plans to file an investigational new drug (IND) application with the FDA later this year to advance an internally developed dual amylin and calcitonin receptor agonist (DACRA) candidate to clinical development for treating obesity.
VKTX’s Non-Obesity Pipeline Shows Potential
Apart from VK2735, Viking is also developing drugs targeting non-alcoholic steatohepatitis (NASH) and X-linked adrenoleukodystrophy (X-ALD) indications.
Last year, Viking completed the phase IIb VOYAGE study on VK2809 in patients with biopsy-confirmed NASH. This study achieved its primary endpoint — patients who received VK2809 achieved a statistically significant reduction in liver fat content following 12 weeks of treatment. Overall data from the study also showed that 40-50% of patients who received VK2809 achieved NASH resolution and at least a one-stage improvement in fibrosis compared with 20% in the placebo group.
Based on the above results, we believe that the drug could rival Madrigal Pharmaceuticals’ Rezdiffra, which was approved by the FDA last year as the first-ever drug to treat NASH. Viking plans to meet the FDA soon to discuss the VOYAGE study results before making any further on the program.
In October, VKTX reported positive results from a phase Ib study evaluating VK0214 in patients with adrenomyeloneuropathy, a form of X-ALD for which there are currently no pharmacologic treatment options. The study met its primary endpoint — a once-daily dose of VK0214 over 28 days was safe and well-tolerated in study participants. Treatment with the drug also significantly reduced plasma levels of very long-chain fatty acids and other lipids compared to placebo.
VKTX’s Lack of Marketed Products: A Woe
While we acknowledge that Viking Therapeutics’ pipeline candidates have demonstrated encouraging results in clinical studies, it still lacks a stable stream of income generation. Management has to shoulder significant cash burn due to ongoing clinical studies. Any developmental or regulatory setback to the ongoing studies could significantly hurt the stock. Its pipeline candidates, which are still undergoing clinical development, are at least a couple of years away from potential commercialization.
VKTX Stock Valuation & Estimates
The company is trading at a premium to the industry. Going by the price/book ratio, the stock currently trades at 4.92, trailing 12-month book value, higher than 3.47 for the industry.
Image Source: Zacks Investment Research
Estimates for Viking Therapeutics’ 2024 loss per share have improved slightly from 98 cents to 97 cents in the past 60 days. Over the same timeframe, loss per share estimates for 2025 have narrowed from $1.42 to $1.41.
Image Source: Zacks Investment Research
How to Play VKTX Stock?
Though Viking does trade at a premium when compared to the industry, we would recommend investors looking for growth stocks to add this Zacks Rank #3 (Hold) company to their portfolio. The demand for obesity drugs is rising, creating opportunities for new entrants despite the rising competition. We believe that there is room for smaller biotechs like VKTX to grab a share of this booming market.
While Viking has its fair share of problems, like the lack of marketed drugs and the presence of pharma giants in targeted markets, its strong cash balance (about $930 million as of September 2024 end) and zero debt ensure that it can sufficiently fund its day-to-day operations, including late-stage pipeline programs, without triggering bankruptcy for at least the next few years. In the past year, shares of Viking have soared 131%, driven by encouraging pipeline updates.
For those who have already invested in the stock, we would suggest holding on to the same as it has growth potential. Consistently rising earnings estimates highlight analysts’ optimistic outlook for further growth.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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