Shares of Viking Therapeutics VKTX rose nearly 8% on Friday after several third-party reports suggested that it was being eyed for a potential takeover by pharma giant Pfizer PFE. These reports even suggest that PFE has appointed Morgan Stanley as its advisor on the transaction.
Viking is one of the few biotech stocks that has shown immense potential in the obesity space. It is developing VK2735, an investigational novel dual GLP-1 and GIP receptor agonist, in different clinical studies as oral and subcutaneous (SC) formulations for treating obesity.
The rumors of a buyout by Pfizer raised Viking's speculative value as a takeover target. Previously, some investors considered Merck a potential buyer for VKTX. However, these rumors diminished in value after Merck secured a licensing deal for China-based Hansoh Pharma’s investigational weight-loss drug.
An acquisition by big pharma could also prove beneficial to Viking Therapeutics, which is currently devoid of a marketed drug and hence lacks the necessary supply chain required to market drugs post a potential marketing approval.
Nevertheless, long-term investors should not bother so much about such buyout speculations. Let’s delve into the company’s strengths and weaknesses to gain a better understanding of how to play the stock.
VKTX’s Progress With Its Obesity Program Encouraging
VK2735 has shown blockbuster potential, demonstrating superior weight reduction capabilities across both oral and SC formulations. In November, Viking presented updated results from the phase I study on oral VK2735 at the annual meeting of 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. Last year, management reported that the phase II VENTURE study, which evaluated VK2735 SC, achieved its primary and all secondary endpoints with statistical significance.
Based on the above results, management started the phase II VENTURE-Oral Dosing study to evaluate the safety and efficacy of the oral version of VK2735 over a 13-week treatment period. VKTX also announced plans to start a late-stage study on the SC version by the first half of 2025.
Eli Lilly LLY and Novo Nordisk NVO are currently dominating the obesity 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 $100 billion by 2030. This is also evident from the fact that Lilly and Novo have not only optimized their production capacities but are also developing multiple other novel obesity candidates at a rapid pace.
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 later this year to advance an internally developed dual amylin and calcitonin receptor agonist (DACRA) candidate to clinical development for treating obesity.
VKTX’s Other Pipeline Drugs Show Potential
Apart from VK2735, Viking is also developing drugs targeting non-alcoholic steatohepatitis (NASH) and X-linked adrenoleukodystrophy (X-ALD) indications.
Last year, Viking completed the phase IIb VOYAGE study on VK2809 in patients with biopsy-confirmed NASH. 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 to 20% in the placebo group.
In October, Viking 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. This study met its primary endpoint — a once-daily dose of VK0214 over 28 days was safe and well tolerated by study participants. Treatment with the drug also significantly reduced plasma levels of very long-chain fatty acids and other lipids compared to placebo.
Management intends to pursue collaboration prospects for both the candidates.
Stiff Competition in VKTX’s Targeted Markets
Though Viking Therapeutics’ pipeline candidates have demonstrated encouraging results in clinical studies, it 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 AstraZeneca, Amgen and Roche are also developing their drugs in the obesity space. All these companies have a well-established distribution and supply-chain infrastructure.
VKTX Stock Performance, Valuation & Estimates
In the past year, VKTX stock fell nearly 12% compared with the industry’s 9% decline. The stock has also underperformed the broader Medical sector and the S&P 500 during this timeframe, as shown in the chart below. VKTX’s shares are currently trading below the 50 and 200-day moving averages.
The company is trading at a premium to the industry. Going by the price/book ratio, the stock currently trades at 4.17, trailing 12-month book value, higher than 3.28 for the industry.
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Image Source: Zacks Investment Research
Estimates for Viking Therapeutics’ 2025 loss per share have widened from $1.41 to $1.56 in the past 60 days. Over the same timeframe, loss per share estimates for 2025 have widened from $1.86 to $2.07.
Zacks Investment Research
Image Source: Zacks Investment Research
How to Play VKTX Stock?
For those who have already invested in this Zacks Rank #3 (Hold) company, we would suggest holding on to the same as it has growth potential, regardless of buyout speculations. While Viking has its fair share of problems, like the lack of marketed drugs and the presence of pharma giants in targeted markets, a strong cash balance (about $903 million as of 2024-end) and zero debt should ensure that it can carry out its day-to-day operations with ease (including late-stage pipeline programs) without the threat of triggering bankruptcy for at least the next few years.
We believe that the rising demand for obesity drugs is an opportunity 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.
If Viking becomes an acquisition target, its existing equity shareholders would benefit from a premium valuation, considering its encouraging progress with its pipeline. The company is expected to report data from the VENTURE-Oral Dosing study before this year’s end.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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