This High-Flying Stock Just Announced More Good News: Time to Buy?

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The biotech’s prospects keep getting brighter.

The biotech industry features many prominent companies that command plenty of attention on the market. And since the year started, few biotechs have made more noise than Viking Therapeutics (VKTX 1.78%), a mid-cap drugmaker.

Viking focuses on developing medicines for metabolic diseases. The stock has more than tripled since early January thanks to a highly promising clinical development. And on that front, it just announced more good news. Let’s look into what it could mean for shareholders.

Going after another exciting market

In February, Viking wowed investors when it released positive phase 2 data for VK2735, a potential anti-obesity medicine. It’s not difficult to see why the market got so excited that it doubled the biotech’s share price in one day.

Weight loss therapies like Wegovy and Zepbound are generating massive sales. If Viking, a relatively unknown player in the industry, can be successful in this market, it could deliver outsize returns to its shareholders.

It is also developing another promising medicine called VK2809 as a treatment for non-alcoholic steatohepatitis (NASH). Here, too, there is massive potential.

NASH is caused by a buildup of fat in the liver, leading to scarring (fibrosis), and can be life-threatening. Obesity is one of the main risk factors for the disease. Up until just a couple of months ago, there were no approved therapies for NASH. There remains a significant unmet need here, one which Viking Therapeutics is looking to fill.

The drugmaker just announced updated positive data from a phase 2 study for VK2809, after it had already reached its primary end point of a reduction in liver fat after 12 weeks of treatment last year. According to the newly released data, 75% of patients treated with the highest dose of VK2809 achieved resolution of NASH with no worsening of fibrosis, compared to just 29.3% of patients in the placebo group 52 weeks into the study.

The medicine also seemed relatively safe, with the overwhelming majority of reported adverse events being mild or moderate.

What’s next for Viking Therapeutics?

Interestingly, Viking’s shares dropped on the day it reported these positive developments. Perhaps investors are still worried about stiff competition in the NASH market: Several pharmaceutical giants are aiming for it, including the makers of Wegovy (Novo Nordisk) and Zepbound (Eli Lilly). Or maybe management’s failure to outline the next steps for VK2809 played a role.

Whatever the case may be, that’s mostly noise. The most crucial point is this: Viking is once again proving that it is a highly innovative company. Investors would have to look very hard to find a clinical-stage mid-cap biotech with two promising assets of the caliber of VK2809 and VK2735.

True, the company still has to ace phase 3 studies before it can launch these products. In that sense, the stock does remain risky. It will need to generate some funds, too.

Late-stage clinical trials are much bigger (i.e., more expensive) than earlier-stage ones. Viking does not generate any revenue, is consistently unprofitable, and has no partner with big pockets. So the road ahead won’t be easy. The company will almost certainly have to rely on dilutive means of financing, just as it did recently. That’s par for the course for pre-commercial biotechs.

That said, the drugmaker looks like one of the best options for biotech investors with an appetite for risk. For those in that category, initiating a small position in the stock after its recent dip might be worth it.