Viking Therapeutics: High Risk, High Reward Play
Viking Therapeutics Inc. (NASDAQ: VKTX) stock is soaring after the company delivered its third-quarter earnings report. The clinical-stage biopharmaceutical company is not profitable and is not generating revenue. However, investors cheered the company’s news that Phase 3 trials for its injectable weight loss treatment, VK2735, are proceeding as scheduled.
It’s impossible to ignore the importance of the company’s dual GLP-1/GIP receptor agonist. The company has other drugs in its pipeline. For example, its VK2809 candidate is in Phase 2 trials to treat non-alcoholic steatohepatitis (NASH). It also has an oral drug, VK0214, which targets a rare genetic neurological disorder.
But none of these candidates have retail investors as excited as VK2735. VKTX stock is up more than 36% in the last three months after the company reported successful Phase 2 trials.
R&D Spending Rises as Phase 3 Trials Accelerate
As stated above, Viking is a pre-revenue company, so it doesn’t give investors much to go on by way of fundamental analysis. However, the company delivered a loss per share of 81 cents, which was greater than the loss of 67 cents per share that analysts expected.
So why is VKTX stock rising? It’s because the company announced it increased its research and development (R&D) spending to $90 million. The Phase 3 study is a 78-week study, so there is still significant cash burn to come. However, investors are willing to overlook that if they see a larger payout.
Viking Targets Massive GLP-1 Market Opportunity
The question is, how big is Viking's opportunity in the GLP-1 market? It’s easy to make the case that VK2735 may have the leading GLP-1 obesity drug candidate, not coming from Eli Lilly (NYSE: LLY) or Novo Nordisk (NYSE: NVO).
Analysts project that by 2029, more than 15 additional GLP-1 drugs could be on the market. At that time, the GLP-1 market is expected to be valued at over $157 billion. That leaves room for other competitors, who may be several years behind Viking. It’s also why some of the speculation into VKTX stock is being driven by hopes that the company may be an M&A target.
However, it still highlights the make-or-break feeling with VKTX stock. Any setbacks will be disastrous for retail investors who got into the stock early.
VKTX Stock: Know What You Own
Whether Viking Therapeutics is a meme stock may be in the eye of the beholder, or holder in this case. But investors should be clear-eyed about what the company is and is not.
For example, if the company successfully brings its GLP-1 injectable drug to market, it will generate revenue and be profitable. However, a 78-week study means that day is more than a year away, and once it arrives, profit will be further down the road.
That puts the stock in the speculative category, but it’s not a meme stock.
One reason is the institutional ownership, which is over 70%. Palantir (NASDAQ: PLTR), which is profitable and part of the S&P 500 and Nasdaq-100, still doesn’t have even 50% institutional ownership. So the fact that Viking is getting this much attention from institutions should provide confidence and put a floor on the stock price.
Analysts are also bullish on VKTX stock. The consensus price target is $86.50, which implies an upside of over 150% from its post-earnings price. MarketBeat shows that 15 analysts cover the stock, which is impressive for a pre-revenue biotech company.
However, it’s still possible that VK2735 will not be approved. Even if it does, the company will be entering a market that is starting to get crowded.
There’s still time to build your speculative position, but understand the risks involved and be prepared to cut your losses if the future results don’t align with the current optimism.
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