Viking Therapeutics: Time To Start Scaling In

Summary

• Despite meaningful progress, 2019 was a year of humdrum events for Viking Therapeutics and the share price was punished for it.
• The recent market sell-off has forced VKTX to a new 52-week low, which has enticed me to move closer to clicking the buy button.
• I discuss why I am looking to scale into a position during this period of high volatility.

A lot has happened in the market since my first Viking Therapeutics (NASDAQ:VKTX) article. Meanwhile, Viking has been dormant, with no major updates besides its Q4 earnings report and some updates on pipeline progress. Unfortunately, the share price has dropped by about 20% since that publication. This sharp pull-back in the market has triggered several of my buy alerts and VKTX was one of them. I plan to initiate my VKTX strategy and will develop a position ahead of VK2809’s pivotal study.

I intend to discuss the company’s recent Q4/2019 earnings and future milestones. In addition, I reveal my plans for starting my pilot position in VKTX and the required circumstances needed for me to add to my position.

A Humdrum 2019

2019 was a year of checking off major milestones, including the initiation of VK2809’s Phase IIb study in biopsy-confirmed NASH. The company’s lead program, VK2809, is an oral thyroid hormone receptor agonist that has a high selectivity from liver tissue as well as the beta receptor subtype. Back in September 2018, Viking publicized their optimistic results from their 12-week Phase II trial where patients receiving VK2809 experienced 54%-60% median relative reductions in liver fat compared ~9% in the placebo group.

Figure 1: VK2809 vs Placebo Liver Fat Content (Source: VKTX)

What is more, 77% to 100% of patients experienced at least a 30% relative reduction in liver fat, matched with 17% for placebo. Furthermore, 70% of VK2809 patients had at least a 50% relative reduction in liver fat content from their baseline. VK2809 also showed noteworthy decreases in LDL-C, trigs, and atherogenic proteins, which indicates a potential cardiovascular benefit. Viking believes VK2809’s potent liver-specific effects combined with its safety, tolerability and potential cardiovascular benefits, set it apart from competitive programs targeting NASH.

The company’s potential treatment for X-ALD is VK0214, a thyroid beta-receptor agonist that has impressive pre-clinical data. VK0214 displayed the prospects to significantly increase the expression of a compensatory transporter associated with the decrease of very-long-chain fatty acids in both plasma and tissue. As a result, the company plans to complete their IND-enabling activities and plans to file the IND in the first half of this year.

In terms of the financials, the company’s 2019 R&D expenses were $23.6M, which was up from $19M in 2018. SG&A expenses came in at $9.1M, which is up from $7.1M in 2018. Viking reported a net loss of $25.8M or $0.36 per share in 2019. In terms of cash position, Viking had $275.6M in cash, cash equivalents, and short term investments at the end of 2019. It looks as if Viking has been able to manage their expenses quite well and still has a healthy cash position to fund their pipeline programs (Figure 2).

Figure 2: VKTX Pipeline (Source: VKTX)

Overall, 2019 was a year filled with uncelebrated progress and success. Initiating trials and advancing preclinical programs doesn’t grab a lot of attention from the market. Unfortunately, the share price reflects the lack of potent catalysts with the stock recently hitting a 52-week low of $5.69.

Why Scale In Now?

I have been holding off on starting a position in VKTX for a number of reasons. Primarily, I haven’t had the extra funds to commit to a speculative ticker that is years away from becoming a commercial-stage company. However, the recent market sell-off has opened the door to VKTX and I am willing to stick my toe over the threshold at its current share price.

Figure 3: VKTX Daily (Source: Trendspider)

The company is moving closer to getting VK2809 over the finish line with compelling data that validates its ability to a leading treatment of NASH. I expect VK2809 to perform will in its Phase IIb VOYAGE study, which should bring some attention back to this ticker as the market recognizes the possibility of VK2809 being approved and the potential of Viking hitting the Street’s revenue estimates in the coming years (Figure 4).

Figure 4: VKTX Revenue Estimates (Source: Seeking Alpha)

It looks as if the Street expects Viking to experience rapid revenue growth and eventually crossing the $1B mark in annual revenue in 2025-2026. Indeed, these are just estimates and there is a big difference between the high and low estimates. However, these numbers illustrate the potential upside in the ticker and why investors should consider VKTX to be their NASH stock. Remember, NASH is still a relatively unclaimed market, so the first-to-market and best-in-class positions are still open. VK2809 has the potential to claim both of those if the pivotal study data shows VK2809 could be the unequaled leader in NASH. Consequently, I expect the market to eventually adjust the share price to meet VK2809's commercial prospects. I have to imagine other investors see this scenario playing out and we could see the share price start to rise ahead of the data readout. I would rather be on the train before it starts to leave the station, so, I plan to finally start scaling into VKTX in the near future.

Change In Plans

I am going to start off with a minuscule amount of shares in order to limit my downside risk. Technically, the stock is quite bearish and we don't know if the market is going to take a big leg down in the coming months as the Coronavirus starts impacting the economy. Although the Coronavirus shouldn’t have a massive impact on Viking's operations, investors typically stay away from speculative investments during times of uncertainty. Consequently, I believe it is possible VKTX remains beaten down for a prolonged period of time. I might be bullish on VKTX, but I don't believe this market environment allows me to "go all-in" at this time. My original was to goal was to have a half-sized position before the end of 2020 and would hold that position through the pivotal study. Now, I will augment that plan to ¼ size position. I still anticipate holding VKTX for at least 5 years with a price target of $25.00 per share.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, but may initiate a long position in VKTX over 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.

Comments

[Biologics]

Fresh 52-week highs...time to book profits?

[mrmeman]

@Biologics I took a little off the top when it broke $10. Will likely add back if it dips back under $8. JMTC. GLTA!

[Biologics]

Would like to see some consolidation over $8

[Biologics]

Going a good tip over the past month...I guess the overall market is taking her up.

[dealripper]

Good news?
seekingalpha.com/...

[experienced]

The key words here are "up to $50 million." That doesn't mean right now, though it is tempting to believe that a company will buy back its own shares when the expected return from buying the shares exceeds the expected growth in the next year or so. Fine with me. As I wrote earlier, the company has more than adequate cash resources to continue its testing of its NASH drug and other drugs as well. I've held VKTX for almost a year and am now thinking about adding shares for my grandchildren under the Uniform Gifts to Minors Act. When they reach college age, they may not need a scholarship.

[panzer]

isnt it hilarious how stock market pros and the fund industry calls it just volatile when stocks lose 40 or 60 percent, but when the go up, the industry says they are going up.

[Biologics]

I'm in

[JayOptsTrader]

Always appreciate an article in this space thank you. You follow the name closely, so if you are only going to buy "a minuscule amount of shares" even at the 52 week lows AND that you think its "possible VKTX remains beaten down for a prolonged period of time" basically tells me you have miniscule conviction at these levels so wait for lower prices...and that I will.

[QBiotech]

Long

[qwefnui]

what are your thoughts on Akeros?

[X-Capitalizt]

Earliest data from their phase 2 is March/April 2021 so this sell off (crash?) is a good place to start a position if the play is on the phase 2 data

[BtotheB]

Just hope you are right. Ever since I hold this position it's dropping... :(

[experienced]

VK2809 was initially tested for treating fatty liver disease, not NASH, but the data now seem to indicate efficacy for both. In addition, and unlike many other small, development stage biotech firms, Viking has sufficient cash to cover administration costs and further tests for at least two years – without the need to dilute existing shares.