How to Navigate Viking Therapeutics After Disappointing Data
In biopharma investing, ups and downs are common, and, as in the case of Viking, they are not always straightforward.
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One thing is for certain when you hold positions in 50 to 60 small- and mid-cap biotech and biopharma stocks, many of your holdings will end up on the list of biggest premarket movers frequently. It seems every week I have a name from my portfolio on this list. Sometimes it's on the right side of the ledger, sometimes on the red side, sometimes I have holdings on both sides during any given day or week. This is why I tend to keep these holdings quite small and typically hold them via covered-call positions.
This provides some solid downside risk mitigation and gives me some flexibility around adjusting these holdings when they do get hit my news. Yesterday, it was Viking Therapeutics VKTX that was on the wrong side of the ledger as far as pre-market movers were concerned. The shares opened pre-market down 30% and ended the day down just over 40% to just over $24 a share.
The trigger for the decline was trial data from its mid-stage study around its oral GLP-1 candidate. Investors were disappointed with the results, even though they showed an up to 12% body weight loss after 13 weeks around a drug that was both safe and generally well-tolerated. Now, five years ago this sort of data would have sent the stock to the moon and made the company’s CEO a frequent guest on the likes of Oprah. But Food and Drug Administration-approved entries from Eli Lilly LLY and Novo Nordisk NVO have revolutionized this space and created a burgeoning GLP-1 weight loss market.
Now to put the decline in perspective, the stock had risen from the mid-$20s in June into this trial disclosure and the equity just puked back those gains. In addition, one quarter of the shares were short going into these trial results. It also should be noted that there are no oral GLP-1 drugs yet on the market and the trial delivered data that met both its primary and secondary endpoints. It also should be noted that recent study results from Lilly’s oral GLP-1 candidate produced very similar weight loss results to Viking’s at its highest dose and also underwhelmed the market, triggering a deep decline in the shares of the drug giant.
In addition, even if the oral version of GLP-1 produces slightly lower weight loss than the approved subcutaneous products on the market, there is likely to be nice niche in this huge market for a drug that can be taken via a daily pill instead of a weekly injection. Viking also has a subcutaneous GLP-1 candidate in Phase 3 development. and has a different candidate being developed to treat the liver disease MASH (metabolic dysfunction-associated steatohepatitis), another huge potential market. It is in mid-stage trials.
Finally, the company has approximately $800 million in cash on its balance sheet so has no need in the near future to raise additional capital while it continues to push its pipeline forward. Therefore, while I am not adding to my stake in Viking on the downturn, I am not jettisoning my stake in this clinical stage biopharma, either. I did roll the options on most of my covered-call positions forward to pick up another set of option premiums and give the stock more time to recover from Tuesday’s selloff.
At the time of publication, Jensen was long NVO and VKTX (both via covered call positions)
