Finance
According to Wall Street, Viking Therapeutics shares could soar 76% higher. Is it buy now?
Shares of Viking therapies (NASDAQ: VKTX)a clinical-stage drugmaker focused on metabolic treatments, has tripled in value this year. Despite the huge run-up, analysts who follow the company think there is much more profit to be made.
The average analyst who follows Viking Therapeutics thinks it could rise to $113.55 per share. Achieving the consensus estimate would result in a gain of approximately 76% from the stock’s recent closing price.
Before you get your broker request To take advantage of the discrepancy between Wall Street expectations and the current stock price, we need to learn a thing or two about the experimental drugs in the company’s advanced pipeline.
Why Wall Street Is Bullish on Viking Therapeutics
Viking Therapeutics currently has no approved drugs it can sell, but an experimental treatment it recently advanced into Phase 3 trials could be a huge blockbuster. VK2735 is a weekly injection that acts on GLP-1 and GIP receptors in the pancreas to reduce patients’ appetite.
There are plenty of GLP-1 drugs on the market, but at this time tirzepatide is no more Eli Lilly (NYSE: LLY) is the only treatment for diabetes or weight management that acts on GLP-1 and GIP receptors. Lilly’s GLP-1 plus GIP agonist was first approved in 2022 for the treatment of diabetes under the brand name Mounjaro and again last November for weight management under the brand name Zepbound.
Tirzepatide does gain market share of semaglutide, a GLP-1 agonist Novo Nordisk markets such as Ozempic, Wegovy and Rybelsus. Eli Lilly’s treatment resulted in second-quarter sales that rose 86% compared to the first quarter, reaching $17.2 billion annually.
Viking plans to initiate a Phase 3 obesity study with VK2735 after a meeting with the Food and Drug Administration (FDA), scheduled for later this year. This isn’t the only dual GLP-1 and GIP agonist in development, but it is arguably closer to FDA approval than its peers.
Viking Therapeutics has a market cap of $7.2 billion at recent prices, but commercial-stage biotech stocks typically trade at a mid-single-digit multiple of annual revenue. That means the stock price could rise several times if VK2735 were able to capture just a fraction of the GLP-1/GIP drug market. In addition to an injectable version of VK2735 that could soon begin Phase 3 trials, Viking expects to initiate a Phase 2 trial with an oral version later this year.
Viking is also developing VK2809 as a treatment for metabolic dysfunction-associated steatohepatitis (MASH). Formerly known as nonalcoholic steatohepatitis, this progressive condition affects the liver function of millions of American adults. Madrigal pharmaceutical products launched the first FDA-approved MASH treatment, called Rezdiffra, in April, and VK2809 could soon follow.
VK2809 succeeded in a long Phase 2 trial, but Viking will wait until after an upcoming meeting with the FDA to announce what’s next for this candidate. If all goes well, the agency may agree to review an application for this candidate before the company completes a Phase 3 program. In other words, the company could start generating revenue from two commercial-stage drugs by the end of 2025.
Reasons to remain cautious
Viking Therapeutics has a market cap of $7.2 billion at recent prices, even though it lost $50 million in the first half of 2024. Its valuation depends on the early approval of VK2735 and a successful launch. VK2809 could be significant, but its future sales potential isn’t even close to what we’ve already seen for weight management treatments.
Before you risk a nickel on this stock, know that most independent drug launches fall short of expectations. Furthermore, there is no guarantee that VK2735’s upcoming Phase 3 trial results will show the FDA what it needs to see.
The company ended June with $942 million in cash. This seems like a lot, but running large Phase 3 trials for VK2735 and VK2809 will increase operating costs by leaps and bounds. If the company can’t bring these drugs to market before its cash cushion flattens, investors who buy the shares at recent prices could take a heavy loss.
Those with low to moderate risk tolerance will want to avoid this and virtually every other clinical-stage biotech stock. However, if you have a strong risk tolerance, adding some shares of Viking Therapeutics to a diverse portfolio seems like a smart move.
Cory Renauer has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has one disclosure policy.
According to Wall Street, Viking Therapeutics shares could soar 76% higher. Is it buy now? was originally published by The Motley Fool
