Viking's Incretin Mimetic Data Fails To Move Stock - Has Mr. Market Moved On?

Investment Overview

If you can't beat them, join them?

Viking Therapeutics (NASDAQ:VKTX) is arguably best known for being one of the frontrunners to win the "NASH Dash," i.e. the first company to secure approval to market and sell a drug designed to treat nonalcoholic steatohepatitis, ("NASH"). Its lead candidate, VK2809, recently met its primary endpoint in a Phase 2b clinical study in patients with biopsy-confirmed NASH and fibrosis ranging from stages F1 to F3.

VK2809 is "an orally available, tissue and receptor-subtype selective agonist of the thyroid hormone receptor beta, or TRß" - according to Viking's latest quarterly report, which reveals the company has total current assets of ~$400m, against a net loss of ~$(39m) across the first half of 2023, compared to a net loss of $(33.5m) across the prior year period.

The drug has a similar mechanism of action ("MoA") to a drug developed by Madrigal Pharmaceuticals (MDGL), Resmetirom. In September, Madrigal announced that the Food and Drug Agency ("FDA") had accepted its New Drug Application ("NDA") for resmetirom in patients with NASH with liver fibrosis, and granted it a priority review, meaning that the agency is scheduled to make an approval decision by mid March 2024.

When Madrigal announced last December that its Phase 3 study in Nash had met its co-primary endpoints, its stock price rose from $63 to $290 overnight - a >360% gain, but the stock price of Viking also jumped by >100% - from ~$4, to ~$9.5, on news of Madrigal's success, with investors believing that if Resemetirom were to be approved, it would make VK2809 a strong likelihood to be approved also.

Meanwhile, Viking has been developing a second asset, VK2735, which is a member of the Dual GLP-1/GIP Receptor Agonist drug class. The most famous examples of this drug class are Novo Nordisk's (NVO) semaglutide and Eli Lilly's tirzepatide. Novo Nordisk markets and sells semaglutide to treat Type 2 diabetes, under the brand name Ozempic, and to treat weight loss, under the brand name Wegovy.

These two drugs made sales of ~$8bn, and ~$6bn in 2022, and have been forecast to keep growing, dominating markets that could reach >$100bn in size by 2030, analysts believe, alongside another GLP-1 agonist, Eli Lilly's (LLY) tirzpepatide, approved for T2D last year under the brand name Mounjaro, and likely to be approved for weight loss this year, which is pegged to become an all-time best-selling drug.

The irony is that both Novo Nordisk and Eli Lilly have the NASH indication in their sights for their receptor agonists, otherwise known as incretin mimetics, because they work by mimicking the incretin hormones that human bodies produce naturally, to stimulate the release of insulin in response to a meal. In other words, they are appetite suppressants.

In the end, although it could be Madrigal that ends up winning the "NASH Dash," provided there are no unexpected setbacks in its marketing application, and providing its final Phase 3 data (from four separate studies) supports earlier, positive data, a market opportunity based on ~30m patients with NASH, once thought to be a potential double-digit billion dollar opportunity, could be decimated by the launch of GLP-1 agonists into the same, or similar markets.

It's arguably no surprise that Madrigal's share price is down 54% year-to-date, while Viking - which has a GLP-1 receptor agonist in its pipeline, has seen its share price climb >170% over the past 12 months - primarily on data related to its Phase 1 stage asset, VK2735, rather than its Phase 3 ready NASH candidate VK2809.

VK2809 - Progress To Date - Up On Phase 1 Data, Down On Rival's Data

In March this year, Viking saw its share price rise from ~$9, to $17 in just a few days after the company shared data relating to VK2735, showing that in a Phase 1 study:

In the 28-day MAD (multiple ascending dose) portion of the study, VK2735 demonstrated encouraging tolerability and positive signs of clinical activity. All cohorts receiving VK2735 demonstrated reductions in mean body weight from baseline, ranging up to 7.8%.

Cohorts receiving VK2735 also demonstrated reductions in mean body weight relative to placebo, ranging up to 6.0%. Statistically significant differences compared to placebo were maintained or improved at the Day 43 follow-up time point, 21 days after the last dose of VK2735 was administered

Meanwhile, Eli Lilly released data from another of its GLP-1 pipeline candidates, retatrutide - nicknamed "Triple G" because it combines glucagon receptor agonism with GIP and GLP-1 receptor agonism - in nonalcoholic fatty liver disease ("NAFLD") in June this year, causing Viking's stock price to plunge from ~$22 to $14.

Lilly said that its Phase 2 clinical trial "indicated normalization of liver fat in nine out of 10 NAFLD patients who received the once-weekly injectable for 48 weeks at the two highest doses." NAFLD is a precursor to NASH, hence if an effective drug is approved in the former indication, it's likely to be more readily prescribed in a wider pool of patients than a drug treating NASH would be.

Once again, Viking was doubtless relieved that it was developing a GLP-1 receptor agonist as one of its lead pipeline assets as a hedge against their monopoly in liver disease, as well as diabetes and weight loss. If it's not possible for a biotech to "beat" the efficacy and safety potential of an incretin mimetic, why not "join" the vanguard of incretin mimetic drug developers?

Today's Data: Promising, But Arguably Below Standard Set By Retatrutide

Back in March, Viking was reporting on the weight loss possibilities of VK2735, but today, the company turned its attention to liver fat reduction and other measures.

In a press release, Viking revealed that after 28 days of therapy with VK2735, patients "experienced reductions in liver fat ranging from 47.2% from baseline." In the NAFLD patient cohort, reductions ranged up to 49.7%, with placebo adjusted reductions of up to 58.5%. Dose dependent reductions from baseline in these plasma lipid levels were observed across VK2735 treatment cohorts. Brian Lian, Ph.D., chief executive officer of Viking commented:

We believe these results suggest broader potential benefits on a patient's overall metabolic health, in tandem with weight loss, and may indicate utility in patients with obesity, NAFLD, and NASH.

Clearly, the studies of retatrutide and VK2735 are not directly comparable, although my suspicion would be that Lilly's drugs' hit rate of 9/10 patients with normalizing liver fat is the standard to beat, and in terms of weight reduction, participants with obesity in the retatrutide study lost more than 24% of their starting body weight within 48 weeks of treatment with the highest dose of retatrutide, compared to the 7.8% observed in the study of VK2735.

Viking stock has scarcely moved on today's data release, which suggests to me that the market is increasingly anxious for weight loss data, and less and less interested in NAFLD / NASH data, perhaps because it believes the success of incretin mimetics will ultimately negate the requirement for a NASH Drug.

That may be unfair on the likes of Viking and its attempts to develop drugs for NASH. Apparently, the pharma giant Pfizer, which has a NASH drug in development, believes the number of NASH patients in the US will reach ~27m by 2030, and it has been independently estimates that the market for NASH therapeutics will reach >$100bn in that year.

The reality seems to be, however, that the market believes the value proposition is much more powerful in diabetes and weight loss than it is in NASH, or that incretin mimetics will one day be proven to best class in the NASH indication also.

That has not quite happened yet - in a Phase 2 study, semaglutide has failed to outperform placebo in patients with NASH and compensated cirrhosis, although it has shown positive signs in other studies. Tirzepatide has shown in a clinical study that it is more effective at reducing liver fat compared to titrated insulin degludec, and the early signs are that the next-generation retatrutide looks strong in NAFL.

Looking Ahead" Catalysts In Play For Viking in Weight Loss, NASH and Elsewhere

Viking plans to initiate a Phase 2a obesity study for VK2735, which will comprise a 13-week trial in obese subjects, with the primary endpoint of percent change in body weight at Week 13 vs. placebo. Data is expected in the first half of next year, and this ought to be an interesting catalyst to look out for, although the challenge of outperforming semaglutide / tirzepatide / retatrutide is a daunting one for Viking and its shareholders.

Meanwhile, among the >40 NASH programs in Phase 2 or 3 development (according to a Viking investor presentation), Viking says that the oral availability of VK2809, its ability to be selective and avoid off-target toxicity, its weight loss qualities, and its long-term cardiovascular benefit marks it out from the crowd. 52-week biopsy results from the Phase 2b study are expected to be available in 1H24, and should anything jeopardise the approval of Madrigal's Resmetirom, VK2809 could still emerge triumphant as the winner of the "NASH Dash."

Viking does have other assets in development besides - an oral version of VK2735, which is a potentially exciting prospect given most GLP-1 agonists are administered subcutaneously, and a next-generation TRB agonist - both are in Phase 1 studies.

Concluding Thoughts" Viking Stock Unmoved On Fresh Liver Fat Data - The Market Moves On, While Viking Clings On

In terms of whether I would view Viking stock as a "Buy," "Sell" or "Hold" based on today's data, and the overriding picture currently presented by the NASH, T2D and Weight loss markets, I would preach caution.

Detracting from the bull case around Viking is that it's neither first in line for an approval in NASH - that honor currently belongs to Madrigal - nor, it seems, has the company produced "best in class" data from a member of the incretin mimetic class.

As such, the peak revenue opportunity for these two assets, which seem potentially approvable in the above indications, may not be substantial enough to support a rising share price and market cap valuation. Realistically, Viking's NASH drug may have to complete a lengthy Phase 3 study to gather data sufficient for an approval, and if liver biopsies are involved, the study will consumer plenty of cash. Even if approved, would the drug sell, faced with competition from Resemtirom and potentially tirzepatide, retatrutide and even semaglutide?

A further issue is that Resmetirom and VK2809 could still fall short of approval, if they're unable to demonstrate that they can tackle later stage NASH patients, i.e. those with cirrhosis. Currently, both candidates data support approval in earlier stage NASH, but the FDA may opt against approval if it feels that alternative therapies - or an adjustment to a healthier lifestyle - offer a greater risk reward benefit.

In terms of breaking into the weight loss / diabetes treatment fields with VK2809, today's data is inconclusive, but on an initial comparison against other members of the same drug class, potentially not in the "standard of care" class. Time will tell if results improve in larger, longer studies, but again, it should be noted that Viking does not have a practically unlimited funding runway, as e.g. Novo and Lilly do.

Viking stock has been tumbling all year as the market turns its attention away from NASH and focuses on T2D and NASH. I do believe it's possible that the company can recapture some of its lost gains upon an approval for Resmetirom - for context, Madrigal's current market cap is $2.7bn - but given the hype around GLP-1 receptor agonists, and admittedly, their astonishing results in the clinic, Viking arguably faces a fight to stay relevant.

I hope that data due in 2024 in NASH and weight loss impress, but for the time being I believe the market has Viking's valuation about right, although the door is left open for upside based on the reasonably near-term revenue opportunity in NASH, and the opportunity to compete in what's likely to be one of the most lucrative drug classes of them all, incretin mimetics. As such, I'd award Viking stock a "Hold" recommendation.

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