Shares of Viking Therapeutics (NASDAQ: VKTX), a clinical-stage drugmaker working on metabolic treatments, have tripled in value this year. Despite the huge run-up, analysts who follow the company think it has heaps more upside.
The average analyst who follows Viking Therapeutics thinks it can rise to $113.55 per share. Reaching the consensus expectation would result in a gain of about 76% from the stock’s recent closing price.
Before opening your brokerage application to take advantage of the mismatch between Wall Street’s expectations and the stock’s present price, we should learn a thing or two about the experimental drugs in the company’s late-stage pipeline.
Why Wall Street is bullish for Viking Therapeutics
Viking Therapeutics doesn’t have any approved drugs it can sell now, but an experimental treatment it recently advanced to phase 3 trials could become an enormous blockbuster. VK2735 is a weekly injection that acts on GLP-1 and GIP receptors in the pancreas to reduce patients’ appetites.
There are plenty of GLP-1 drugs out there, but at the moment, tirzepatide from 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 to treat diabetes under the brand name Mounjaro in 2022 and again for weight management last November under the brand name Zepbound.
Tirzepatide is gaining market share from semaglutide, a GLP-1 agonist that Novo Nordisk markets as Ozempic, Wegovy, and Rybelsus. Eli Lilly’s treatment produced second-quarter sales that rocketed up by 86% compared to the first quarter to reach an annualized $17.2 billion.
Viking intends to begin a phase 3 obesity trial 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’s arguably closer to earning approval from the FDA than its peers.
Viking Therapeutics sports a $7.2 billion market cap at recent prices, but commercial-stage biotech stocks tend to trade at mid-single-digit multiples of annual sales. That means its stock price could rise severalfold if VK2735 can carve out just a fraction of the market for GLP-1/GIP drugs. In addition to an injectible version of VK2735 that could begin phase 3 trials soon, Viking expects to start 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 Pharmaceuticals launched the first FDA-approved MASH treatment, called Rezdiffra, in April, and VK2809 could follow before too long.
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 could agree to review an application for this candidate before the company completes a phase 3 program. In other words, the company could begin generating sales from two commercial-stage drugs by the end of 2025.
Reasons to remain cautious
Viking Therapeutics has a $7.2 billion market cap at recent prices, even though it lost $50 million in the first half of 2024. Its valuation depends on the swift 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, you should know that most independent drug launches do not meet 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 finished June with $942 million in cash. This seems like a lot, but running large phase 3 trials for VK2735 and VK2809 will expand operating expenses by leaps and bounds. If the company can’t launch these drugs before its cash cushion flattens out, investors who buy the stock at recent prices could suffer a heavy loss.
Folks with a low to moderate risk tolerance want to avoid this and just about any other clinical-stage biotech stock. If you have a strong tolerance for risk, though, adding some shares of Viking Therapeutics to a diverse portfolio looks 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 Rocket 76% Higher According to Wall Street. Is It a Buy Now? was originally published by The Motley Fool
