Viking Therapeutics (NASDAQ:VKTX) is a pharmaceutical startup whose stock has gone through substantial ups and downs over the last several years.
While VKTX has experienced a great deal of volatility, it has also been moving gradually forward as a business toward introducing its own line of anti-obesity drugs that could have significant value.
Is Viking Therapeutics stock a bargain in today’s market, or is the stock still too risky to be investable?
What Do Viking’s Growth Prospects Look Like?
The main bull case for Viking is currently centered around its pipeline of new potential medications, especially VK2735. This promising drug is a dual agonist of GIP and GLP-1, giving it substantial potential as part of the ever-growing market for anti-obesity drugs. Crucially, VK2735 is being tested for oral application.
While the drug is still in clinical trials, the potential for Viking to create an effective anti-obesity pill could put it alongside businesses like Novo Nordisk and Eli Lilly as a prime beneficiary of strong consumer demand for weight loss drugs.
If Viking becomes a major player in the weight loss drug space, the resulting growth and the returns shareholders could see on their investments could be very large. For reference, Novo Nordisk’s Ozempic and Wegovy drugs added about $26 billion to its sales last year alone. With Viking’s market cap still under $4 billion, it would take only a fraction of those sales to make Viking look like a potentially attractive value.
It’s also worth noting that Viking Therapeutics is still in a strong financial position, boasting $33.9 million in cash and $773.8 million in short-term investments as of the end of Q2.
On the other side of its balance sheet, the business has just $32.4 million of total liabilities, of which only $410,000 is long-term. This strong balance sheet gives Viking the ability to continue investing in both its anti-obesity pipeline and other novel drugs.
Even with ongoing losses, Viking appears to have the ability to keep funding its development for multiple years without having to incur unreasonable debt. In the past, Viking has substantially diluted its shares to raise additional capital.
Over the last year, though, the rate at which the number of outstanding shares has grown has slowed to a much more reasonable level. This bodes well for investors looking at the stock today, as they may not face the kind of dilution that current shareholders have.
The rub to all of this, of course, is that Viking has yet to generate significant revenues. Even with the very appealing potential of VK2735, this makes VKTX something of a speculative investment. VK2735 is currently in Phase 3 trials for subcutaneous application and Phase 2 trials for oral application.
While this is promising progress toward commercialization, it’s difficult to say with any certainty when, whether and to what extent Viking Therapeutics will begin making meaningful sales of this and other drugs. As such, VKTX likely falls into the category of being a high-risk, high-return stock.
Viking’s Difficult Q2
Although the business shows significant long-term promise and a healthy balance sheet, Viking’s results in Q2 were far from what investors were hoping for. Viking reported a larger-than-expected loss of $65.6 million, up from $22.3 million a year earlier.
It’s worth noting, though, that this loss is largely explained by an increase in research and development expenses. Spending on R&D increased from $23.8 million to $60.2 million over the last year, closely mirroring the expansion of total net losses.
The fact that the loss was primarily explained by R&D expenses didn’t prevent VKTX shares from selling off. After-hours trading saw Viking shares fall about 7 percent in the wake of the Q2 earnings report. This selloff, however, proved to be temporary and shares have since recovered to about where they were before the earnings report came out.
Shares have also been losing ground on a longer-term basis, and this phenomenon has proven to have more staying power than the brief selloff that followed Q2’s report.
VKTX traded at over $75 per share late last year, powered by strong investor sentiment around weight-loss drugs. Over the last 12 months, shares of Viking have fallen by over 46 percent as the market has baked a longer timeline for commercialization into its assumptions.
The Disparity Between Analyst Ratings and VKTX’s Prices
One rather interesting aspect of Viking’s stock price at the moment is the fact that shares are trading far below the average range of analyst price forecasts.
The average price target for VKTX is $89.95, nearly 170 percent above the most recent price of $34.42. The lowest price that has been forecast for the stock is $33, putting VKTX essentially at the bottom of its target range.
Is Viking Therapeutics A Bargain Buy?
Right now, Viking Therapeutics presents an interesting dichotomy for investors. On one hand, the weight-loss drugs in its pipeline could prove to be worth several times Viking’s entire current market cap, giving it at least the potential to turn into a multibagger investment.
This argument is bolstered by its strong balance sheet, which gives the business a good chance of bringing that potential to fruition. On the other hand, Viking’s lack of current revenues and the uncertainty around just how much money it can make from VK2735 and other drugs makes VKTX, by nature, fairly speculative.
While investors who buy Viking will likely need to have a higher-than-average risk tolerance, there’s a decently good argument to be made for the fledgling drug firm.
With VK2735 now in Phase 3 trials, there’s a decent chance that Viking Therapeutics will be able to deliver on the promise of its weight-loss drug pipeline in the not-too-distant future. From that point, both the business and the stock could enjoy significant upward momentum as Viking introduces an oral weight-loss pill and pushes more drugs through its pipeline.
All told, VKTX could be trading at a significant discount to its potential long-term value. Though there are certainly risks associated with the stock, investors willing to take those risks on in exchange for a chance at higher-than-average returns could find Viking worth considering. For more conservative investors, VKTX could still be worth watching, as some of the uncertainties around it will likely be cleared up as VK2735 moves forward.
The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.