Viking Therapeutics: A Promising NASH Diversification Play (NASDAQ:VKTX)

Nothing is price doing until it’s price doing proper. – Phillip Fischer (Warren Buffett’s second mentor)

As you’ll be able to see, investing in clinical-stage biotech is essentially the most thrilling and extremely worthwhile even throughout a bear market. Supplied that you’ll be able to forecast upcoming medical information experiences and FDA approval. Else, betting on an organization with upcoming failed information may cause you to lose over 50% of your place when the catalyst unfolds. On that be aware, I need to introduce you to a brand new inventory that we have been discussing and forecasting inside our Non-public Investing Neighborhood in prior weeks, i.e., Viking Therapeutics (NASDAQ:VKTX).

As you already know, Viking shares lately rallied over 60% in a single buying and selling session resulting from its constructive early weight problems information. Although Viking executed a public providing to boost capital after the mentioned occasion, the momentum nonetheless continues. In spite of everything, there may be one other greater catalyst on the horizon. Particularly, there may be an upcoming VK2809 information launch for the silent but lethal liver situation coined non-alcoholic steatohepatitis (i.e., NASH). On this analysis, I am going to characteristic a basic evaluation of Viking whereas being laser beam targeted on catalysts unlocking.

Determine 1: Viking chart

About The Firm

As standard, I am going to current a quick company overview for brand spanking new buyers. In case you are acquainted with the agency, I like to recommend that you just skip to the following part. Based mostly in San Diego, California, Viking Therapeutics is targeted on the event and commercialization of medicines to deal with metabolic and endocrine problems.

Viewing the pipeline under, you’ll be able to see that the lead drug is VK2809. Designed to deal with NASH, VK2809 is being assessed in a Section 2b medical investigation. As such, fruitful improvement right here can add substantial worth to Viking. Whereas different molecules like VK2735 can add additional worth, your greatest guess is with VK2809.

Determine 2: Therapeutic pipeline

NASH – A Monopoly Market

To understand the potential of Viking as an funding, it is best to go over NASH’s underlying science/medication. On the superior spectrum of non-alcoholic fatty liver illness (NAFLD), NASH is a severe and silent liver situation that’s characterised by fats build up within the liver. Over time, that causes irritation, liver scarring (fibrosis), and cirrhosis. Finally, the liver loses its regular structure and thereby turns into non-functional.

As you’ll be able to see, NASH tends to happen with different co-morbid circumstances, together with weight problems, Kind 2 diabetes, and metabolic syndrome. As a consequence of our more and more sedentary way of life coupled with quick meals, you’ll be able to guess there’s a excessive prevalence of NASH. As a ramification, you’ll be able to think about that the worldwide NASH market would attain $180B within the foreseeable future.

Asides from therapeutic way of life modifications, there are at present no FDA-approved medicines for this silent killer. A liver transplant is the one viable resolution. Supplied that yow will discover a match, the wait could be fairly prolonged. Even with a transplant, the immunosuppressants that sufferers take would topic them to lethal opportunistic infections. Placing all that collectively, you’ll be able to see there’s a enormous demand for a therapeutic resolution for NASH.

VKTX2809 for NASH

From my prior analysis on NASH, you’ll be able to respect that the liver is a singular organ for being the one one that may self-regenerate. That’s to say, if you happen to minimize off a part of the liver, it will regrow the lacking half. As you’ll be able to see, the offender of NASH is the buildup of fat which hampers the liver’s regenerative potential. By boosting the fat-burning potential of the liver via beta-thyroid agonism, you’ll be able to tilt the stability to permit the liver to reverse the fibrosis course. And, that is precisely what Viking’s drug is designed to do.

Determine 3: Beta thyroid agonist’s position in NAFLD

Concentrating on the liver’s beta thyroid exercise, VK2809 burns extreme liver fat which in the end permits the liver to heal itself. When self-healing is kicked into excessive gear, liver fibrosis is reversed. Now, VK2809 is a “pro-drug” which I consider creates extra complexity than wanted.

For the drug to turn out to be lively, it’d must be metabolized by the liver enzyme (CYP3A4) within the liver. As soon as activated, VK2809 does its work in decreasing liver fats with minimal toxicity because of the excessive selectivity for its goal, i.e., the liver. Comparable medicine (i.e, Resmitirom) of Madrigal Prescribed drugs (MDGL) validated this mechanism of motion. The priority right here is the potential CYP3A “down-regulation” which might scale back VK2809 efficacy with long-term use.

Determine 4: VK2809 mechanism of motion

Supporting Medical Information

As you already know, all sound science and medication could be meaningless until VK2809 can exhibit medical efficacy. Under, you’ll be able to see that this drug posted strong liver fats discount at 12 weeks into remedy. The responses vary as excessive as 59.7% in comparison with the 9.4% liver fats discount for the placebo arm.

Importantly, because the dosage will increase, you’ll be able to see a stronger magnitude of response which signifies a “dose-response” relationship. As you’ll be able to respect, a “dose-response” relationship is powerful proof of efficacy.

Determine 5: VK2809 early information

You too can assess efficacy by viewing the proportion of sufferers who loved not less than over 30% liver fats discount. On this entrance, there isn’t a clear-cut dose-response relationship but the general response is a outstanding 87.9%.

Determine 6: Share of sufferers with important fats discount

As you’ll be able to see, I focus closely on liver fats discount for short-term remedy (i.e., 12 weeks or much less). In spite of everything, it is the primary direct variable in ascertaining whether or not the fibrosis could be reversed for longer-term trials. If the drug cannot clear important fats, the possibilities of it decreasing fibrosis in a complicated trial could be extraordinarily low. As you noticed, VK2809 considerably lowered liver fats within the 12-week remedy. As such, it is a promising signal going into longer medical research.

Curiously, Viking is advancing VK2809 in Section 2 (VOYAGE) trial for the 12-month period. Efficacy and security information can be accessible in Q2 this yr. If information seems constructive, it could transfer the needles in your inventory.

Latest Weight problems Franchise Growth

Although of lesser significance, Viking lately posted constructive information for its weight problems phase. Within the Section 1 research, sufferers have been randomized to obtain numerous VK2735 doses and a placebo. By regulating sugar and lipid metabolism, VK2735 can promote weight reduction and enhance the affected person’s diabetes.

Determine 7: VK2735 Mechanism of motion

Viewing the determine under, you’ll be able to see that the noticed weight discount over 28 days registered as 8.2kg (i.e., a – 6.0% placebo-adjusted) discount from baseline. There may be additionally an general dose-response relationship that signifies efficacy. Nevertheless, if you assess the burden discount for the 7.5mg vs 10mg, you’ll be able to see that the efficacy is definitely diminished. As such, the optimized dosage would the that 7.5mg.

Determine 8: Weight discount following 28 days of remedy

On the efficacy spectrum, that is just like competing weight problems medicine which publish a mean of roughly 10% physique weight discount relative to placebo. Maybe, the market’s latest exuberance is said to the drug’s general good security profile. It is also attainable that the rally could possibly be in anticipation of the NASH outcomes. As you already know, I seen Viking’s NASH franchise as way more invaluable than its weight problems drug.

Monetary Evaluation

Simply as you’ll get an annual bodily in your well-being, it is vital to test the monetary well being of your inventory. For example, your well being is affected by “blood move” as your inventory’s viability depends on the “money move.” With that in thoughts, I am going to assess the 4Q 2022 earnings report for the interval that ended on December 31.

Like different clinical-stage biotech corporations, Vikings has but to obtain any revenues. At this level in its progress cycle, it could be most applicable to debate different monetary metrics. That being mentioned, the analysis and improvement (R&D) for the respective durations registered at $16.1M and $9.8M. I seen the 64.2% R&D enhance positively as a result of the cash invested right now can flip into blockbuster earnings tomorrow. In spite of everything, you must plant a tree to take pleasure in its fruits.

Moreover, there have been $18.9M ($0.26 per share) web losses in comparison with $12.7M ($0.16 per share) decline for a similar comparability. On a per-share foundation, the underside line is depreciated by 62.5%. As you’ll be able to see, the upper funding into R&D cuts into the underside line.

Determine 9: Key monetary metrics

Concerning the stability sheet, there have been $155M in money, equivalents, and investments. On high of the $250M lately raised, the whole money place is now $405M. In opposition to the $20.2M quarterly OpEx, there ought to be sufficient capital to fund operations past the following 4 to 5 years. Merely put, the money place is extraordinarily strong relative to the burn price.

Whereas on the stability sheet, it is best to test to see if Viking is a “serial diluter.” In spite of everything, an organization that’s serially diluted will render your funding basically nugatory. Provided that the shares excellent elevated from 78.0M to 93.7M (76.5M + 17.2M shares lately increase), my math revealed a 20.1% annual dilution. At this price, Viking simply cleared my 30% cut-off for a worthwhile funding.

Potential Dangers

Since funding analysis is an imperfect science, there are at all times dangers related along with your inventory no matter its basic strengths. Extra importantly, the dangers are “growth-cycle dependent.” At this level in its life cycle, the primary concern for Viking is whether or not VK2809 can clear its Section 2 trial for NASH in Q2. Extended remedy of roughly 1 yr may trigger CYP3A “down-regulation” which might doubtlessly scale back the efficacy noticed.

Given the essential significance of Vk2809 in passing its research, a adverse trial outcome right here may cause the inventory to break down. Furthermore, there’s a excessive danger that future weight problems improvement will not bear fruit.

Concluding Remarks

In all, I issued a extremely speculative purchase suggestion on Viking with a 4.4/5 stars score. Whereas Viking’s latest weight problems information catapult the shares to a brand new excessive, essentially the most promising franchise is NASH. Earlier information present that VK2809 is a promising NASH drug. By ramping the liver’s organic furnace to burn off extra fats, VK2809 has demonstrated strong liver fats discount. In doing so, it permits the liver’s self-regenerative functionality to kick into excessive gear.

If CYP24 downregulation would not turn out to be a giant concern, you’ll be able to count on VK2809 to clear its upcoming VOYAGE trial with flying colours. Although I’m not optimistic about VK2735, I simply do not like weight problems medicine based mostly on what I noticed through the years. Nevertheless, it would ship surprisingly superior outcomes sooner or later.