Viking Therapeutics: A recovery that will not last

Alex Hamilton  |

After a dismal 2019, biotech company Viking Therapeutics (NASDAQ:VKTX) has recovered a portion of its value. The stock has risen by 17.8% compared to its November 1 price to $7.92 and a market cap of $572 million. However, Viking has declined by 32.1% compared to one year ago. The recent rise was fueled by its 2019 3Q earnings report and call. In the earnings call as transcribed by Seeking Alpha, Viking Therapeutics CEO Brian Lian said that its main drug called VK2809 had completed “the chronic toxicity studies required for long-term dosing in humans” and was “preparing for the initiation of our planned Phase 2b trial in patients.”

Viking Therapeutics may be ready to begin new trials soon and the company is in good financial health. But there are major reasons to be concerned about this company’s product and the fact that it appears to be falling behind its competition. Here are a few reasons why I remain skeptical about this stock.

Can Its Drug Succeed?

Viking Therapeutics has just three drugs in its pipeline, and the fundamental question about this company revolves around its main product VK2809. Viking Therapeutics hopes that VK2809 can be used to treat non-alcoholic fatty liver disease (NAFLD) and its more severe variant non-alcoholic steatohepatitis (NASH.) This is a common condition with the American Liver Foundation stating that 100 million Americans have NAFLD. Severe incidences can cause liver inflammation and scarring. There are no approved treatments for this disease.

These factors mean that the market for NASH could be immense, with Pharmaceutical Technologies claiming that the NASH market could have a CAGR of 63% by 2026 to reach a market size of $18.3 billion. If Viking can develop a successful treatment, the sky would be the limit for this company.

But that is a significant if. In its most recent clinical trials, VK2809 completed a Phase 2 trial with successful results at a residential addiction treatment facility. As Lian stated in the conference call, patients who took VK2809 saw a median liver fat reduction of 57% compared to 9% for those taking a placebo and there were no serious adverse effects reported. However, investors should remember that reaching Phase 2 is far from a guarantee of success. Pharmaceutical consulting company Nuventra observes that even reaching Phase 3 only guarantees a 60% chance of getting FDA approval. And while Viking does have two other products in its pipeline, one which reported successful Phase 2 proof of concept results back in 2017, a VK2809 failure would be catastrophic for this company’s value.

Competition and Financial Health

Furthermore, even receiving approval for VK2809 would not guarantee its financial success. The potential lucrativeness of the NASH market means that other competitors are developing treatments, and some of these competitors are significantly ahead of Viking.

For example, Intercept Pharmaceuticals (NASDAQ:ICPT) is well into its Phase 3 trial, while Viking will likely not begin its Phase 3 trial until 2021. Genfit (NASDAQ:GNFT) is also conducting Phase 3 trials with its own separate treatment, and other companies like Madrigal Pharmaceuticals and Allergen are moving ahead as well. Given how many patients have NAFLD, being the first drug out of development is not critical as different patients will likely require varied treatments. But Viking falling behind this many competitors should be a serious concern.

In addition to the threat of falling behind larger competitors, investors should be concerned about the fact that Viking is lacking in partners. The company states in its most recent 10-Q report that “We currently do not have strategic collaborations in place for clinical development of any of our current drug candidates” and that “we do not currently possess the resources necessary to independently develop and commercialize our drug candidates.” This also speaks poorly of its drug pipeline and indicates that larger medical firms may not be confident in VK2809’s efficacy.

On a final positive note, it should be noted that Viking Therapeutics has good finances. According to its 10-Q, Viking had $289.2 million in total current assets as of September 30, 2019, of which $30.9 million is in cash. By comparison, Viking had a comprehensive loss of $17.7 million over the 2019 3Q. Research expenses rose from $13.9 million in the 2018 3Q to $17.1 million, a good sign that shows that research is progressing. With its available cash on hand, Viking can keep tests running and work on development without worrying about funds for some time.

Risk not worth reward

Clinical stage biotech companies are always high-risk high-reward investments, and so investors must look at their own portfolio and decide how much risk they want before deciding on Viking. But in Viking’s case, the risk does not seem to be worth the rewards. Its recent upsurge is no dead cat bounce and it has immense potential if VK2809 is successful. But it is no sure thing that VK2809 will be successful and it will face immense pressure to commercialize its drug given its lack of partners.

If Viking can secure a partner soon or begin future tests sooner than expected, investors may want to consider giving this company a second look. But for now, investors should look elsewhere for other high-reward opportunities.

DISCLOSURE: Author has no stake in the listed equities


The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer.

Comments