Viking Therapeutics: A Strong Grower To Service The Lucrative NASH Market

Summary

• Viking is powering a highly promising pipeline of several potential big winners. VK2809 is quite similar to the strong nonalcoholic steatohepatitis ("NASH") molecule, MGL-3196 of Madrigal.
• Upcoming Phase 2 data reporting of VK2809 for nonalcoholic fatty liver disease and hypercholesterolemia can spark another rally.
• Other strong molecules to enable more "shots on goal" of finding a blockbuster.
• Members of my private investing community, Integrated BioSci Investing, can follow this idea, as well as my other top picks with access to my model portfolio. Start your free trial today >>

You are neither right nor wrong because the crowd disagrees with you. You are right because your data and reasoning are right. - Benjamin Graham

Viking Therapeutics (NASDAQ:NASDAQ:VKTX) is a highly promising grower alerted to us by members of Integrated BioSci Investing. The stock enjoyed a similar strong rally subsequent to the robust Phase 2 outcomes of MGL-3196 of Madrigal Pharmaceuticals (MDGL) - a company featured in our Specialty Report that catapulted Madrigal's shares by +144% in one day. In our analysis of Viking, we noticed that the company is brewing a similar molecule to MGL-3196 that has substantial prospects. Notwithstanding, there are other interesting pipeline innovations that are overlooked. All that being said, we'll feature a fundamental analysis of the company while focusing on the upcoming clinical binary that can deliver much further upsides to this investment.

Figure 1: Viking stock chart. (Source: StockCharts)

Fundamental Analysis

Based in San Diego, CA, Viking Therapeutics is focused on the development and commercialization of novel medicines to service the metabolic and endocrine diseases. The company has the exclusive global rights to five drug franchises, which are powered by small molecules licensed from Ligand Pharmaceuticals (NASDAQ:LGND). It's seemingly that the crown jewel of the pipeline is VK2809 (Figure 2). As an agonist (i.e. activator) of the selective thyroid beta receptor, VK2809 is currently being assessed in a Phase 2 trial for the treatment of non-alcoholic fatty liver disease ("NAFLD") and high blood cholesterol (hypercholesterolemia). Despite that its most promising indication is in NAFLD (a spectrum of liver diseases that includes NASH), VK2809 is concurrently being investigated as a potential management for the orphan conditions - glycogen storage disease ("GSD") Type Ia and X-linked adrenoleukodystrophy ("X-ALD").

That aside, there is VK5211, an oral nonsteroidal selective androgen receptor modulator ("SARM"). In a Phase 2 trial that studied patients recovering from hip fracture, VK5211-treated patients enjoyed the significant improvements in lean body mass. Moreover, the company is brewing VK0612 (first-in-class oral drug candidate) in a Phase 2 study for type 2 diabetes. Furthermore, VK0214 is another oral beta thyroid receptor subtype selective agonist that demonstrated highly promising early data.

Figure 2: Therapeutic pipeline. (Source: Viking)

For your research convenience, we summarized various developments in Table 1 below. Commenting on the events having significant ramifications, the CEO (Dr. Brian Lian) enthused:

Q1 has been an exciting and productive period for Viking as we built upon the momentum from 2017. With our novel SARM VK5211, for hip fracture, we continued working toward a planned meeting with the FDA on potential next steps for the program. We anticipate that this meeting will occur in H2 2018. We also continued enrolling patients in the Phase 2 trial of our novel thyroid receptor beta agonist, VK2809 for NAFLD and hypercholesterolemia, and remain on track to announce data from this study in H2. Lastly, we continued to advance our rare disease programs targeting GSD and X-ALD. We expect to initiate a proof-of-concept ("POC") trial for VK2809 in GSD Ia this quarter, and we plan to complete IND-enabling studies for VK0214 in X-ALD later this year. Each of these programs represents exciting future opportunities for Viking.

Latest corporate developments
Clinical	VK2809 for NAFLD/hypercholesterolemia:- An oral molecule of beta thyroid receptor targeting the liver - Phase 2 trial enrollment completed with the results to be posted in H2 2018. VK2809 for GSD Ia:- GSD Ia (a rare genetic disease resulting in the build-up of glycogen and fats in the liver) - Preclinical data support its efficacy and safety - Plans to start the Phase 1 trial this quarter. VK0214 for X-ALD:- An oral beta thyroid receptor subtype selective agonist - Highly promising early data - IND filing for a POC study in 2019.
Other	Partnering discussions underway for VK5211:- An oral molecule SARM, designed to promote bone and muscle formation - Strong positive Phase 2 data for patients recovering from hip fracture enticed potential partners.
Outlook	VK2809 Phase 2 trial for NAFLD to be reported in H2 2018.

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Table 1: Catalyst summary. (Source: Dr. Tran BioSci)

Among the developments, we are most interested in the Phase 2 clinical trial of VK2809. As stated, VK2809 is an oral medicine potentially used to treat NASH and hypercholesterolemia. On June 05, 2018, Viking announced the enrollment of the trial is completed. Due to its stellar mechanism of action in stimulating the beta thyroid receptor subtype in the liver, VK2809 ramps up the metabolic rate and thereby reducing fatty liver as well as inflammation and fibrosis: this mechanism of action is very similar to that of MGL-3196 of Madrigal Pharmaceuticals.

Per study protocol, patients are randomized to receive either once-daily oral doses of VK2809 or a placebo (sugar pill) for 12-week (followed by a 4-week off-drug phase). The primary study endpoint assesses the LDl-cholesterol level after week 12. The secondary endpoints (which are more important for NASH) include the following: changes in liver fat content, inflammatory markers, and plasma lipids. Excited by the upcoming clinical binary, Dr. Lian remarked:

We are pleased to have completed patient enrollment in this important study and remain on track to report top-line results during H2 this year. We believe VK2809's potent activity at the thyroid beta receptor may provide benefit to patients with fatty liver disease, such as NASH. In vivo studies have shown that treatment with VK2809 leads to significant improvement in markers related to NASH development, severity, and progression. In addition, prior clinical data in subjects with mild hypercholesterolemia have demonstrated that treatment with VK2809 results in significant reductions in LDL cholesterol, triglycerides, and atherogenic proteins.

We'll triage the financial health of Viking by analyzing the Q1 2018 earnings report (that ended on March 31). Notably, the company reported a net loss of $3.6M ($0.08 per share) compared to the $5.2M ($0.23 per share) decline for the same period a year prior. The research and development (R&D) expenses for the respective periods logged in at $3.0M and $3.5M. The lower R&D is primarily due to less manufacturing expenses (and a decrease in activities relating to the VK5211 clinical development).

Investors should be cognizant that it is the norm for a relatively young bioscience like Viking to incur significant losses for years (as shown in Figure 3) prior to banking a net profit (due to the lengthy and low success rate of the innovation process). Nonetheless, it only takes one blockbuster to make your investment worthwhile.

Figure 3: Key financial metrics. (Source: Morningstar. Adapted by Dr. Tran BioSci)

Pertaining to the balance sheet, there were $77.5M in cash and equivalents. On June 12, the company also executed the offering of 8.625M shares for $77.6M, which raised the overall cash position to $155.1M. Based on the $4.8M quarterly burn rate, there should be adequate capital to fund operations for the next several years (prior to the need for any additional financing).

Valuation Analysis

Warren Buffett stated that two excellent analysts can assess the same company (and came up with distinct figures). Hence, one should take valuation within its appropriate context. To minimize subjectivity, we employed the comparative market analytical method (of gauging similar firms to give investors a rough estimate of an investment's value). Per table 3, Viking is currently valued at only $630M in market cap, which is much lower than peers (hence, potentially a favorable valuation).

Companies	Market capitalization
Viking Therapeutics	$630.7M
Madrigal Pharmaceuticals	$3.9B
Conatus Pharmaceuticals (CNAT)	$121.7M
Galmed Pharmaceuticals (GLMD)	$213.0M
Intercept Pharmaceuticals (ICPT)	$2.6B
Gemphire Therapeutics (GEMP)	$101.4M

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Table 3: Comparative market analysis. (Source: Dr. Tran BioSci)

Market Assessment

The NASH market is highly lucrative and currently without an approved molecule. Most companies featured in our Specialty Report on NASH have procured significant profits for shareholders thus far. And, this is partially related to the strong market prospects. In the prior research, we presented:

"The NASH market for NASH (as estimated by Global Data across 7 major regions - the USA, Germany, Italy, Spain, UK, and Japan - to grow at 45% CAGR from $618M in 2016 to $25.3B by 2026. There are several companies racing to secure a molecule. Despite that other firms may have a safe and efficacious drug, we are most interested in molecules being innovated by Gilead Sciences (GILD), Intercept Pharmaceuticals, Enanta Pharmaceuticals, Galmed Pharmaceuticals, and especially Madrigal Pharmaceuticals because they post highly promising data witnessed to date. In all probability, Intercept will take the first mover advantage: OCA to initially capture this gargantuan market. Regardless of its strong efficacy, OCA demonstrated the lipid abnormality that can be a 'turn off' to some physicians. These changes in lipid profile, however, can be easily ameliorated by a statin. Asides from Intercept, Madrigal will most likely earn an approval for MGL-3196 sometimes thereafter. Due to its strong efficacy and extremely favorable tolerability, MGL-3196 will cut into the market to gain dominance. Aramchol is another stellar molecule that has a robust chance of tapping into this lucrative market. And though VK2809 will come later, its efficacy and safety should enable it to take significant market shares."

Final Remarks

Viking is brewing several promising molecules that have stellar prospects. Nevertheless, the crown jewel of this pipeline (VK2809) is most likely to generate the positive data (and ultimately gains regulatory approvals to service the lucrative NASH market). Despite that there will be other strong competing NASH molecules like MGL-3196, there is plenty of room in this vast market for VK2809. In addition, the ongoing developments of the other molecules (like VK5211) can also catapult the shares to a new high.

In term of risks, the main concern for VK2809 is if the data of the upcoming Phase 2 trial for NASH/hypercholesterolemia will procure positive endpoints. It is reasonable to expect the stock to tumble over 50% in a negative binary event and vice versa. Moreover, even if the aforesaid medicine will be approved, it might not generate substantial sales due to market competition and other unforeseen variables.

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Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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