Is Viking Therapeutics a Smart Buy on the Dip?

Shares of Viking Therapeutics (VKTX -4.12%) are down about 25% from the peak they reached in mid-March. If you weren’t paying close attention, you might think the clinical-stage drugmaker announced disappointing results from its lead candidate, but this wasn’t the case. Viking Therapeutics’ lead candidate, VK2809, is an experimental treatment for non-alcoholic steatohepatitis (NASH).

Its second most advanced program, VK2735, is aimed at metabolic disorders including obesity. The company had nothing to say about these programs last week, but its stock price still tanked.  Is Viking Therapeutics a smart buy on the dip?

Here’s what you should know first.

Why Viking Therapeutics fell

Diabetes treatments that have been repurposed to treat obesity are flying off pharmacy shelves. The leader in this space, Novo Nordisk, reported anti-obesity medication sales that soared 84% to £2.4 billion last year, and there is a lot more room for this drug class to grow. In January, there were around 64,000 Americans with prescriptions for branded anti-obesity medications.

That’s just a tiny sliver of eligible patients. An estimated 97 million Americans live with obesity right now, and 90% of this group has at least one related comorbidity. Novo Nordisk’s anti-obesity medications are both glucagon-like peptide receptor agonists, or GLP-1s.

Viking Therapeutics and Altimmune (ALT 3.10%) are separately developing candidates that act on GLP-1 plus additional targets that could make them more effective than the market leaders. VK2735 from Viking Therapeutics acts on glucose-dependent insulinotropic polypeptide (GIP) receptors while pemvidutide from Altimmune acts on glucagon receptors. Viking Therapeutics stock crashed last week because Altimmune announced disappointing tolerability data from a phase 2 obesity trial.

Among patients randomized to receive pemvidutide, 24% dropped out early, and around half of the withdrawals were due to gastrointestinal events. Altimmune’s results suggest that adding to the functionality of existing GLP-1 drugs results in an intolerable drug, but it’s way too early to assume VK2735 is a dud. First, Altimmune’s trial protocol didn’t allow for dose reductions resulting from tolerability issues as it probably should have.

Also, VK2735 aims for a different member of the glucagon receptor family, which could allow it to avoid the tolerability issues seen from pemvidutide. Viking is expected to announce initial clinical trial data from VK2735 by the end of March. Given the differences between this program and Altimmune’s, it’s probably best to wait for the announcement before making any assumptions based on pemvidutide’s results.

The lead program is on track

Viking Therapeutics’ lead candidate, VK2809, could become a blockbuster treatment for NASH.

Around 24% of U.S. adults have non-alcoholic fatty liver disease (NAFLD), and for most, it isn’t a serious problem. For roughly 10% of these folks, though, their immune systems begin attacking liver tissue, leading to swelling and fibrosis. In a phase 2a study, patients with high cholesterol and NAFLD, treated with VK2809, achieved an average liver fat reduction of 60%, and none of the patients reported serious side effects.

Late last year, Viking finished enrolling NASH patients into a phase 2b trial, and we should have topline results to look at by the end of June. Expectations for VK2809 are high because a similar candidate, resmetirom from Madrigal Pharmaceuticals (MDGL 1.17%), produced highly successful results in a phase 3 trial with NASH patients last December. Patients treated with the highest dose tested were three times as likely to experience NASH resolution as those randomized to receive a placebo.

A buy now?

Madrigal is miles ahead of Viking on the development timeline, but Viking could have a safety advantage.

Viking is testing VK2809 at doses that are 10 to 100 times lower than the 100-milligram dosage of resmetirom that Madrigal tested in its phase 3 study. Viking Therapeutics’ market cap is down at around £694 million right now. That seems like a bargain-bin price for VK2809 on its own.

Factor in some potential for its anti-obesity candidate, and this stock appears to be an unbeatable bargain. Before plowing all your hard-earned money into this stock, though, there are some risks to consider. Madrigal hasn’t submitted an application to the FDA for resmetirom yet, so it could be about a year before we know if this drug class even has legs.

With VK2809 still in phase 2 testing, it could be several years before we know if it can compete with resmetirom. In the meantime, Viking Therapeutics will continue burning through cash because it doesn’t have any approved treatments to sell yet. This stock is a buy, but it’s only appropriate for investors at the upper end of the risk tolerance spectrum.

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