When it comes to pre-revenue biotechs, it's often a struggle to build an investment thesis beyond "if the medicine works, the stock will go up." And while that proposition is certainly true with Viking Therapeutics, (VKTX -3.56%) there's more than one reason for why the stock is worth buying.
In fact, there are at least four arguments supporting an investment, so let's take a look at each.
1. It's racing closer to generating revenue for the first time
Viking is still in the process of getting its first medicine out the door. By the looks of it, things are proceeding as planned, and within a couple of years at most, it'll be raking in sales, which is a reason to buy its stock.
Its lead candidate, VK2735, will start its phase 3 clinical trials soon after the company meets with regulators at the Food and Drug Administration to discuss a few details; assuming standard practices, the trials will most likely begin sometime in early first quarter in 2025. Per the biotech's presentation at the ObesityWeek 2024 conference, held earlier this month, elaborating on its previously reported phase 2 clinical trial results, there isn't too much for investors to worry about.
In the 13-week trial, patients given a weekly injection of the highest tested dose of VK2735 lost 13.1% of their body weight on average, on a placebo-adjusted basis. The weight loss mostly continued for at least four weeks after treatment ended, and the side effects were almost entirely mild.
Those results position VK2735 as likely being more effective and less uncomfortable for patients in comparison to the weight loss market's leaders, Novo Nordisk and Eli Lilly. While the phase 3 data will clarify that issue further, for now it looks like Viking won't have any trouble capturing market share if its candidate is approved, making shareholders a bit richer in the process.
2. It's planning to launch a powerful and disruptive new clinical program
Sometime in 2025, Viking will file with regulators to begin early-stage clinical trials investigating a new therapy for weight loss. This program uses two mechanisms of action, targeting the amylin and calcitonin receptors, which are not represented elsewhere in its pipeline so far. That means it isn't just a rehash of its other programs.
The other upside is that the program could be capable of sparking rapid weight loss directly, as well as promoting weight loss indirectly by increasing the feelings of satiety from eating. Such an intervention might be better for maintenance of weight than the current set of therapies on the market. While AstraZeneca and Novo Nordisk are developing similar candidates, their programs aren't yet close to reaching approval.
Not much information is available about this program yet, and the preclinical data derived from animal models is too sketchy to treat with confidence. Still, it's clear that Viking is already planning for the next big thing after its first set of therapies get approved for sale, and that'll contribute to its competitiveness over the long term.
3. It has plenty of financial flexibility
Viking isn't a biotech that will need to take out a lot of debt or issue a lot of new shares to get its therapies out the door. Therefore, buying its stock won't leave you at as high of a risk of your shares getting diluted by new issuance like buying many other biotech stocks would.
At the end of Q3, it had more than $930 million in cash, equivalents, and short-term investments, whereas its trailing-12-month (TTM) research and development (R&D) expenditures were just $91 million. Furthermore, its TTM cash outflow was just a touch over $74 million.
There's absolutely nothing to suggest that it's under any kind of financial pressure at all. It doesn't have any long-term debt, either, though it does have some negligible capital lease obligations. And, with a lead candidate that keeps reporting good data and advancing through clinical trials, it could likely borrow plenty of money at a reasonable interest rate if it needed more funding for commercialization fees or other expenses.
So its financial flexibility is another smart reason to buy the stock.
4. It could easily tap outside help in multiple forms
As if its strong balance sheet weren't enough, Viking has the pick of the litter when it comes to forging collaboration agreements, partnerships, and licensing deals with other biopharmas, especially for anything relating to VK2735. The reason for this is that when a biotech has a candidate that looks like it's a shoo-in for getting approved and subsequently grabbing a big share of a big market, other players in the industry would much rather have a piece of the pie, even as a minor player, than miss out on the gains entirely.
At present, Viking doesn't need the additional resources that a collaborator would bring. Depending on its commercialization strategy, as VK2735 gets closer to approval, that might change. It wouldn't hurt to team up with a manufacturer, and it might be advantageous to form a joint venture of some sort with foreign biopharma companies to expedite entry into those markets.
For now, just consider it to be bullish that this biotech is working alone, as it means there's still a lot of upside lurking in the form of potential collaborations over the coming years.
