Viking Therapeutics: MASH Data Punished By Wall Street Amid GLP-1 Uncertainty (VKTX)

Investment Thesis – Viking Stock Spikes >200% On Obesity Data, Sinks On MASH Data

I last covered Viking Therapeutics, Inc. (NASDAQ:VKTX) in a note for Seeking Alpha back in March. The San Diego, California-based biotech’s stock began to soar in value in January and February this year – rising from ~$20 per share, to >$85 per share – as the company shared data from its Phase 2 “VENTURE” clinical study of drug candidate VK2735, a novel dual agonist of the glucagon-like peptide 1, or GLP-1, and glucose-dependent insulinotropic polypeptide, or GIP, receptors.

According to the company’s Q1 2024 10Q submission / quarterly report:

on February 27, 2024, we announced that patients receiving weekly doses of VK2735 demonstrated statistically significant reductions in mean body weight after 13 weeks, ranging up to 14.7% from baseline. Patients receiving VK2735 also demonstrated statistically significant reductions in mean body weight relative to placebo, ranging up to 13.1%.

The mechanism of action of VK2735 is similar to Eli Lilly’s (LLY) tirzepatide, also a GLP-1 / GIP inhibitor, and Novo Nordisk’s (NVO) semaglutide, which targets GLP-1 only. Tirzepatide is marketed and sold as Mounjaro, in the indication of Type 2 diabetes, and Zepbound, in the indication of obesity, while semaglutide is marketed and sold as Ozempic / Wegovy in the same two indications. As I wrote back in March:

These two drugs – known as incretin mimetics, since they mimic the actions of natural incretin hormones, stimulating the release of insulin, and inhibiting the release of glucagon, suppressing our appetites and helping us to feel fuller – have been hailed for their miraculous weight loss properties.

In its pivotal study in obesity, Lilly’s tirzepatide was able to show that on average, patients lost ~21% of their bodyweight at 72 weeks, with one in three patients losing >25%. Wegovy’s pivotal study demonstrated ~15% average weight loss.

Novo’s two drugs, which were approved earlier than Lilly’s, drove >$18bn of revenues in 2023 – $14bn for ozempic, and $4.5bn for wegovy, while Lilly’s mounjaro drove >$5bn revenues last year, and zepbound, which was only approved in early November, $176m.

This is small change compared to the revenue figures Wall Street believes these two drugs can deliver, however, with some analysts projecting that tirzepatide can reach $62bn of revenues by 2030, and others suggesting that wegovy and zepbound could go on to dominate an obesity market worth $150 – $200bn.

In short, Viking’s data suggested VK2735 may have the safety and efficacy profile to compete for market share against Zepbound and Wegovy in a triple-digit-billion market, explaining why Viking’s stock made such miraculous gains.

After the initial excitement and share price gains, however, Viking’s stock price has become more volatile, as competitors – not only Lilly and Novo, with next-generation versions of tirzepatide and semaglutide, but the likes of Pharma giants Roche (OTCQX:RHHBY), Amgen (AMGN), and smaller challengers such as Altimmune (ALT), have also shared compelling weight loss data.

This week, Viking presented updated Phase 2 study data from most advanced drug candidate, which is not VK2735, but VK2809 – the drug that most analysts believed was its key value driver, before the release of the VENTURE study data from VK2735.

VK2809 is an orally available, agonist of the thyroid hormone beta receptor (“THRB”), and it is indicated to treat nonalcoholic steatohepatitis (“NASH”), now referred to as metabolic dysfunction-associated steatohepatitis (“MASH”). Like VK2735, analysts are excited about the potential of this drug partly due to the approval of another THRB agonist, Madrigal Pharmaceuticals (MDGL) resmetirom, which was approved for the same indication and will be marketed and sold as Rezdiffra – peak revenue expectations for Rezdiffra, which costs ~$47.4k, have been set as high as $3.4bn per annum.

Unfortunately, Viking’s latest data did not wow the market, despite some encouraging data, which showed that “up to 75% of patients treated with VK2809 achieved NASH resolution with no worsening of fibrosis compared to 29% for placebo, and up to 57% of patients achieved >1 stage improvement in fibrosis with no worsening of NASH, compared to 34% on placebo” (according to a press release).

48% of patients achieved both resolution of NASH and >1-stage improvement in fibrosis versus 20% of patients on placebo, the company reported, with a safety profile consistent with prior studies, i.e., likely sufficient for approval. For context, in its pivotal study, Rezdiffra achieved the following (according to an FDA press release):

A total of 26% to 27% of subjects who received 80 milligrams of Rezdiffra and 24% to 36% of subjects who received 100 milligrams of Rezdiffra experienced NASH resolution and no worsening of liver scarring, compared to 9% to 13% of those who received placebo and counseling on diet and exercise.

Analysis – Why The Market Sold Viking On NASH Data

While the Phase 2b data supported the thesis that VK2809 could challenge Rezdiffra in commercial markets, Viking’s relatively slow pace of development is seemingly the main reason why Wall Street opted to sell the stock.

Viking declined to provide specific guidance around a potential path for approval for its “lead” drug, despite multiple analyst questions during a conference call arranged to discuss the data, instead stating it intended to wait until it had discussed the data with the FDA before making any decisions.

The reality is that a pivotal Phase 3 study will likely still need to be completed, and generate positive results, before Viking would have enough data to seek approval from the Food and Drug Agency (“FDA”) to market and sell the drug commercially. That could take another two years (at least), and all the while, Rezdiffra would have the market to itself, as the first drug ever approved to treat NASH, potentially taking such command of the market that Viking would struggle to compete.

Announcing its Q1 2024 earnings, Viking reported a net loss of $27.3m, versus $19.5m in the prior year, but also cash and cash equivalents of $196m, plus short-term investments of $797m – the company was able to raise >$600m, at $85 per share, immediately after releasing its Phase 2 obesity data in March.

That ought to be sufficient funding to guide VK2809 through the Phase 3 study process and through the regulatory approval process. However, Viking management insists they would like to find a partner for the Phase 3 study, to share costs (and perhaps supply the manufacturing and distribution infrastructure the company lacks).

In summary, the picture is relatively cloudy – on the one hand, Viking seemingly has the data and the funds to push for approval of VK2809, but seems reluctant to pull out all the stops to make it happen. This could be because some data cuts from the VENTURE study apparently looked better than others, with some subsets failing to show a statistically significant difference between the drug and placebo arms. Perhaps Viking is worried about investing heavily in a drug that may not make it to market after all?

The GLP-1 Revolution Threatens Viking’s MASH Market Appeal

The remarkable thing about GLP-1 agonist drugs is that their “miraculous” efficacy may not be restricted to weight loss / diabetes alone. Novo’s semaglutide has produced some outstanding data in patients with cardiovascular disease, with patients in an >800 patient study experiencing significant decreases in major heart disease events versus placebo, for example, whilst there has even been evidence put forward suggesting they may benefit patients with certain types of solid tumor cancers.

This week, Eli Lilly (LLY) shared data from a study of tirzepatide in NASH patients, in which ~55% of patients taking a 5mg dose achieved fibrosis reduction of at least one stage, with no worsening of NASH, versus ~30% of patients on placebo, suggesting that the drug has a good chance of being the second ever drug to be approved to treat NASH.

Madrigal stock was retreating on the news, as with its superior manufacturing and distribution infrastructure (although there is currently a global shortage of both semaglutide and tirzepatide, both Lilly and Novo are investing double-digit billion sums in ramping up manufacturing of their GLP-1 drugs), the company could end up eating Rezdiffra’s lunch in the NASH market.

Where would that leave Viking? In a potentially tricky situation – does the company burn triple-digit millions attempting to bring a thyroid agonist to market, with all the risk that entails developmentally and commercially, or would it be better off trying to take on wegovy and zepbound in the GLP-1 agonist market, where it would be uncompetitive from a manufacturing and distribution perspective, and potentially from an efficacy perspective too – Viking’s impressive data has been garnered from much smaller clinical studies than those undergone by wegovy / zepbound.

Concluding Thoughts – Is Viking Therapeutics Stock A Buy, Sell or Hold At Today’s Prices?

Today (at the time of writing) Viking’s stock price is ~$54, and its market cap valuation ~$6bn. For context, Madrigal’s market cap valuation is ~$5bn, while Eli Lilly’s is approaching the unprecedented figure of $800bn, and Novo’s is approaching $650bn, with little evidence to suggest the bull run is coming to an end any time soon.

It’s pretty clear that Wall Street believes the hype when it comes to GLP-1 agonists – Goldman Sachs (GS) analysts raised their peak sales projections for these drugs from $100bn per annum, to $130bn, this week, and also suggested Lilly and Novo would enjoy 80% of the market.

That leaves the door open for a smaller biotech like Viking to claim a decent share of its own, however, since releasing its VENTURE data in March, both Roche (my note here) and Amgen (my note here) have released data suggesting their GLP-1 candidates, CT-388 and Mari-Tide, may be as competitive, if not more competitive, than Viking’s, and both these companies have the funding and infrastructure clout that Viking lacks.

Does that mean it is time for investors to brace themselves for a bear run on Viking stock? Not necessarily, although that outcome is potentially something any Viking shareholder or prospective investor ought to be considering at this stage.

Viking does have an oral version of VK2735 up its sleeve – on its most recent earning call, President and CEI Brian Lian reported on Phase 1 data as follows:

Subjects receiving oral VK2735 demonstrated dose-dependent reductions in body weight ranging up to 5.3% from baseline. Placebo-adjusted reductions in body weight reached up to 3.3% from baseline. Body weight reductions, compared with baseline and placebo were statistically significant at the highest dose evaluate

The trouble is, Eli Lilly is making progress with an oral GLP-1 agonist too – orforglipron – and there are some new kids on the block to consider too – Structure Therapeutics (GPCR), Omega Therapeutics (OMGA), NeuroBo Pharma (NRBO), vTv Therapeutics (VTVT), Rhythm Pharma (RYTM), and Biohaven (BHVN).

While the market and demand for these “miracle” weight loss drugs is in no danger of becoming congested, there are more options for investors looking to gain exposure to this sector available. In that context, Viking did well to complete a >$600m fundraising at such a high price when announcing its VENTURE data, which was taken from a study involving <150 patients – semaglutide and tirzepatide studies involved thousands of patients.

To conclude, on the plus side, Viking Therapeutics, Inc. is developing two drugs whose mechanism of action has been validated and secured approvals in highly lucrative markets, but on the downside, neither may have the “best-in-class” profile required to win Wall Street over, and secure peak revenues in the double-digit billions.

At least not at this stage – Viking will supply more data in relation to both assets in due course, and good results – most especially with VK2735 – could still send the share price soaring once again, while Big Pharma concerns that do not have a GLP-1 agonist program may still be considering an M&A bid for Viking, which I suspect would be in the region of $85 per share, or higher.

The longer Viking allows its competitors to have the markets to themselves, or release data from larger studies and push into pivotal studies, however, the more the share price is likely to suffer, and therefore, I think Viking stock may have further to fall before it can fight back on signs of renewed progress.

As such, I’d make another “hold” call for Viking Therapeutics, Inc. stock currently, but would urge investors to complete their own due diligence as this is a fluid, ever-changing space where small fortunes can be won and lost.