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Shares of Viking Therapeutics VKTX have lost nearly 17% in the past month, translating to about $1.2 billion in market value, compared with the industry’s 7.1% decline. The stock has also underperformed the sector and the S&P 500 during the same period, as shown in the chart below. VKTX’s shares are trading below the 50 and 200-day moving averages.

VKTX Stock Underperforms Industry, Sector & S&P 500

Though this biotech’s progress with its obesity drug program has been encouraging, the rising competition for developing obesity drugs is a major factor responsible for this decline. The stock plummeted earlier this month when pharma giant AstraZeneca AZN presented encouraging results from an early-stage study on its investigational oral drug at the ObesityWeek 2024 Annual meeting. AZN revealed that its oral pill achieved 5.8% weight reduction after four weeks of treatment in patients with type II diabetes.

Adding to these challenges is the major downturn in the broader drug/biotech sector due to lower-than-expected third-quarter results, guidance cuts and pipeline setbacks. Last week, President-elect Donald Trump announced his decision to nominate vaccine skeptic Robert F. Kennedy Jr. to run the Department of Health and Human Services. These factors have negatively impacted nearly all companies in the sector.

Let’s delve into the company’s strengths and weaknesses to gain a better understanding of how to play the stock amid the recent price increase.

Encouraging Development of VKTX’s Obesity Program

Viking is one of the few biotech stocks that have shown immense potential in the obesity space. The company is developing VK2735 as a subcutaneous (SC) injection and an oral pill in mid-stage and early-stage studies, respectively.

VK2735 has shown blockbuster potential, demonstrating superior weight reduction capabilities in both clinical studies. Earlier this month, Viking presented updated results from the phase I study on the oral version of VK2735 at ObesityWeek, which showed that patients who received the highest drug dose lost up to 8.2% in body weight after 28 days of daily dosing compared with 1.4% in the placebo group. In February, management reported that the phase II VENTURE study, which evaluated the SC formulation of VK2735, achieved its primary and all secondary endpoints with statistical significance.

Before 2024-end, management plans to meet the FDA to discuss the late-stage study design for the SC formulation of VK2735 and start a mid-stage study on the oral formulation. It also plans to evaluate once-monthly dosing of VK2735 SC in a future clinical study.

Like other obesity drug makers, Viking is not just limiting itself to one obesity drug. Management plans to file an investigational new drug (IND) application with the FDA next year to advance an internally developed dual amylin and calcitonin receptor agonist candidate to clinical development for treating obesity.

The obesity market has garnered much interest lately, with two companies, Eli Lilly LLY and Novo Nordisk NVO, dominating this space with their respective obesity drugs Zepbound and Wegovy. Per a research conducted by Goldman Sachs, the obesity market in the United States is expected to reach $130 billion by 2030. This is also evident from the fact that Lilly and Novo are investing heavily to optimize their production capacities and have started evaluating multiple other novel obesity candidates.

VKTX’s Other Pipeline Drugs Show Potential

Apart from VK2735, Viking is also developing drugs for non-alcoholic steatohepatitis (NASH) and X-linked adrenoleukodystrophy (X-ALD) indications.

Earlier this year, Viking completed the phase IIb VOYAGE study on VK2809 in patients with biopsy-confirmed NASH. The study achieved its primary endpoint — patients who received VK2809 achieved a statistically significant reduction in liver fat content following 12 weeks of treatment. Overall data from the study showed that 40-50% of patients who received VK2809 achieved NASH resolution and at least a one-stage improvement in fibrosis compared with 20% in the placebo group.

Based on the above results, we believe that the drug could rival Madrigal Pharmaceuticals’ Rezdiffra, which was approved by the FDA earlier this year as the first-ever drug to treat NASH. Viking intends to meet the FDA before this year’s end to discuss the VOYAGE study results before discussing further on the program.

Last month, VKTX reported positive results from a phase Ib study evaluating VK0214 in patients with adrenomyeloneuropathy, a form of X-ALD for which there are currently no pharmacologic treatment options. The study met its primary endpoint — a once-daily dose of VK0214 over 28 days was safe and well-tolerated in study participants. Treatment with the drug also significantly reduced plasma levels of very long-chain fatty acids and other lipids compared to placebo.

Stiff Competition in VKTX’s Targeted Markets

While we acknowledge that Viking Therapeutics’ pipeline candidates have demonstrated encouraging results in clinical studies, the company faces stiff competition in the targeted markets. The company’s obesity candidate will compete directly with pharma big-wigs like Eli Lilly and Novo Nordisk, who have either marketed drugs in this space or are developing their respective candidates in clinical studies. Other large-cap pharma/biotech companies like Roche, Pfizer and Amgen are also developing their drugs in the obesity space. All these companies have a well-established distribution and supply-chain infrastructure in place.

VKTX Stock Valuation & Estimates

The company is trading at a premium to the industry. Going by the price/book ratio, the stock currently trades at 6.31, trailing 12-month book value, higher than 3.49 for the industry.

Estimates for Viking Therapeutics’ 2024 loss per share have improved slightly from $1.00 to 98 cents in the past 60 days. Over the same timeframe, loss per share estimates for 2025 have narrowed from $1.46 to $1.44.

Stay Invested in VKTX Stock

Viking has its fair share of problems, including the lack of a stable income stream and the presence of pharma giants like Lilly and Novo in its target market spaces. However, the accumulated cash balance of around $930 million (as of September 2024-end) and zero debt ensure that the company can sufficiently fund its day-to-day operations, including late-stage pipeline programs, without triggering bankruptcy for at least the next few years. Year to date, shares of Viking have skyrocketed 177%, primarily driven by its encouraging progress with its pipeline drugs.

The demand for obesity drugs is rising, creating opportunities for new entrants despite the rising competition. We believe that there is room for smaller biotechs like VKTX to grab a share of this booming market.

For those who have invested in the stock, we would suggest holding on to the same as it has growth potential. Consistently rising earnings estimates highlight analysts’ optimistic outlook for further growth. VKTX holds a Zacks Rank #3 (Hold) at present.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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