Current Standing
Viking Therapeutics (NASDAQ:VKTX) has experienced a remarkable 65% surge in value. This surge is attributed to the promise of its drug portfolio. VK2809 for NASH, as well as its ventures into addressing obesity and diabetes, are attracting significant attention. The industry’s escalating interest in GLP-1/GIP agonists has been notably exemplified by Roche’s acquisition of Carmot Therapeutics. Viking’s financial foundation stands robust, despite escalating operational costs. Its substantial cash reserve and favorable current ratio provide support amidst the costly stages of drug development. However, the soaring expenses and growing losses underscore the challenging financial landscape of pharmaceutical innovation. Market sentiment remains mixed, with substantial institutional support but also significant short interest. Given this complex scenario, a thorough exploration of Viking’s strategic moves, operational challenges, and financial status is critical. Therefore, investors must approach with caution and carefully calibrate their strategies within the ever-evolving and intricate biotech arena.
Viking and Carmot’s Coinciding Paths in Dual Agonist Development
Viking’s obesity and diabetes medications have garnered significant attention recently. In December, Carmot Therapeutics, a peer of Viking, was acquired by Roche in a deal valued at up to $3.1 billion. Carmot, like Viking, is developing subcutaneous dual GLP-1/GIP agonists, CT-868 (once daily) and CT-388 (once weekly).
Both CT-388 and VK2735 share mechanisms of action (GLP-1/GIP) with Eli Lilly’s (LLY) Zepbound (a weekly subcutaneous injection) anticipated to generate sales in the tens of billions of dollars annually.
Both CT-388 and VK2735 demonstrated analogous data in Phase 1/2 studies. Carmot’s CT-338, administered over 4 weeks to overweight or obese adults, achieved 8.4% weight loss (equating to approximately 17 pounds), along with improvements in insulin sensitivity and hip circumference. Its side effects were mild and mainly gastrointestinal-related, typical of its class.
Contrastingly, VK2735 demonstrated weight loss “up to 7.8%” with a typical tolerability profile over the same duration in similar patients.
While specifics are unavailable, it appears that Viking’s data (as per the slide) comprised only obese patients (BMI ≥ 30), whereas Carmot included “overweight” individuals (BMI 25–29.9). In theory, it could be easier for a drug to demonstrate more significant weight loss in heavier individuals. Despite this apparent disadvantage, Carmot’s drug may have achieved superior weight loss at lower doses than Viking’s drug. However, these are speculative assertions, and comparative analysis across trials, even if complete datasets were available, would be arduous. Moreover, in addition to subcutaneous solutions, Carmot is developing an oral GLP-1 agonist, while Viking is developing an oral GLP-1/GIP agonist. Although oral medications may be more convenient and preferred, their efficacy and tolerability could be compromised due to gastrointestinal absorption.
Q3 Financial Performance
Viking Therapeutics encountered a spike in operational costs. In Q3 ’23, operational expenses surged. Research and development outlays leaped to $18.38 million from $11.96 million. Administrative costs also rose, reaching $8.89 million from $4.24 million. Consequently, losses widened to $27.27 million from $16.20 million. Despite zero revenue, interest income rose, mitigating the net loss, which swelled to $4.73 million from a mere $0.45 million. Yet, the earnings snapshot underscored share dilution. Basic and diluted loss per share crept up from $0.21 to $0.23. Shares in calculation ballooned to 99.8 million from 76.5 million.
Financial Stability
On the balance sheet front, Viking’s liquidity appeared robust. Cash and equivalents stood at $37.2 million, with short-term investments at $339.1 million, totaling $376.3 million. Current liabilities were minimal, at $13.4 million, resulting in a healthy current ratio of 28.1. Viking’s cash burn over nine months reached $55.7 million, translating to a monthly burn rate of about $6.2 million. With considerable liquidity, Viking’s financial runway extends beyond 60 months. Despite these figures, the company’s future outcomes remain uncertain. The firm’s sturdy short-term finances suggest low immediate funding requirements. Nevertheless, biotech ventures confront unpredictable markets and developmental risks.
Market Outlook
Viking’s market cap has soared to $2.35 billion. Driven by bold stock upswings, it surpasses the SPY. Over the past year, its gain stands at an impressive +155.17%, dwarfing SPY’s +18.63%. Analysts do not anticipate any substantial revenue for Viking in the absence of later-stage assets or partnerships. Shorts are substantial, with 15.53% positioned against it. However, this could fuel a swift rally, requiring just 5.24 days to unwind. Institutional ownership is robust, at 77.44%, exhibiting dynamic institutional involvement. Although major entities such as Fmr, Blackrock, and State Street provide solid support, insiders have offloaded 1,079,616 shares, signaling caution. With these elements, VKTX’s market sentiment can be characterized as “adequate,” balancing brisk momentum and solid backing against notable shorts and insider selling.
Should Investors Buy, Sell, or Hold VKTX Stock?
Viking’s foray into the challenging GLP-1 and GIP agonist arena, particularly with oral medications, presents significant obstacles. The sector is densely populated, and the barriers associated with oral delivery exacerbate uncertainties about effectiveness and tolerability. Carmot’s $3.1 billion acquisition might signal limited upside for Viking. While Viking’s NASH drug contributes value, the role and revenue potential of TRβ agonists in NASH remain elusive, and Madrigal’s TRβ agonist (currently under regulatory review) maintains a significant lead.
On the financial front, Viking appears robust for now. Its lengthy cash runway alleviates concerns about immediate liquidity needs. Nevertheless, escalating expenditure and growing losses underscore the steep price of innovation in this field. Investors should expect expenses to further escalate as Viking progresses its medications through the anticipated expensive and time-consuming Phase 2/3 trials. Moving forward, attention should be focused on VK2735 and the oral drug efforts for forthcoming clinical and regulatory updates. The decision to adopt a ‘hold’ stance will be re-evaluated based on the outcomes of VK2735’s upcoming clinical trials and additional insight into the competitive landscape in the GLP-1/GIP agonist market. In the interim, diversifying investments could mitigate risks. It is crucial to keep a sharp eye on Viking’s journey and the sector’s transformations.
