Shares of Viking Therapeutics (NASDAQ: VKTX)a clinical-stage pharmaceutical company working on metabolic treatments, have tripled in value this year. Despite the huge gain, analysts who follow the company believe it has much more upside.
The average analyst following Viking Therapeutics thinks it can rise to $113.55 per share. Reaching the consensus estimate would result in a gain of about 76% from the stock’s recent closing price.
Before you open your investment application to profit from the mismatch between Wall Street expectations and the current stock price, you should first learn a thing or two about the experimental drugs in the late-stage pipeline of the company.
Why Wall Street is bullish on Viking Therapeutics
Viking Therapeutics currently has no approved drugs to sell, but an experimental treatment it recently advanced to phase 3 trials could become a huge blockbuster. VK2735 is a weekly injection that works on GLP-1 and GIP receptors in the pancreas to curb patients’ appetite.
There are many GLP-1 drugs on the market, but at the moment tirzepatide is Eli Lilly (NYSE: LLY) is the only treatment for diabetes or weight management that works on GLP-1 and GIP receptors. Lilly’s GLP-1 plus GIP agonist was first approved for diabetes treatment under the brand name Mounjaro in 2022 and again for weight management last November under the brand name Zepbound.
Tirzepatide gains market share from semaglutide, a GLP-1 agonist that New Nordisk markets such as Ozempic, Wegovy and Rybelsus. Eli Lilly’s treatment delivered 86% revenue growth in the second quarter compared to the first quarter, to an annualized $17.2 billion.
Viking plans to initiate a Phase 3 obesity trial with VK2735 following 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’s arguably closer to gaining 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 mid-single-digit multiples of annual revenue. That means the stock could rise several times if VK2735 captures even a fraction of the GLP-1/GIP drug market. In addition to an injectable version of VK2735 that could begin phase 3 trials soon, Viking expects to begin phase 2 trials of an oral version later this year.
Viking is also developing VK2809 as a treatment for metabolic dysfunction-associated steatohepatitis (MASH). This progressive condition, formerly known as nonalcoholic steatohepatitis, affects the liver function of millions of American adults. Madrigal Farmaceutica launched the first FDA-approved MASH treatment, called Rezdiffra, in April, and VK2809 could follow soon.
VK2809 completed a lengthy Phase 2 trial, but Viking will wait until after an upcoming meeting with the FDA to announce what the next step is for this candidate. If all goes well, the agency could agree to review an application for this candidate before the company completes a Phase 3 program. In other words, the company could generate revenue from two commercial 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 hinges on VK2735’s rapid approval and a successful launch. VK2809 could be significant, but its future sales potential doesn’t even come close to what we’ve seen for weight management treatments.
Before you risk a dime on this stock, you should know that most independent drug launches fail to live up to expectations. Plus, there’s 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. That may seem like a lot, but running large Phase 3 trials for VK2735 and VK2809 will cause operating expenses to skyrocket. If the company can’t launch those drugs before its cash buffer flattens, investors buying the stock at recent prices could be in for a big loss.
Those with a low to moderate risk appetite will want to avoid this and almost all other clinical-stage biotech stocks. However, if you have a strong risk appetite, adding some Viking Therapeutics shares to a diversified 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 a disclosure policy.
Viking Therapeutics Stock Could Soar 76% Higher, Says Wall Street. Is It a Buy Now? was originally published by The Motley Fool
