Viking Therapeutics, Inc.

Moat: 1/5

Understandability: 3/5

Balance Sheet Health: 3/5

Viking Therapeutics, Inc. is a clinical-stage biopharmaceutical company focused on the development of novel therapies for metabolic and endocrine disorders, primarily in the field of Nonalcoholic Steatohepatitis (NASH) and other related conditions.

Investor Relations Previous Earnings Calls

The moat, understandability, and balance sheet health scores reflect a conservative evaluation to ensure a margin of safety in any assessment.

Business Overview:

Viking Therapeutics is a clinical-stage biopharmaceutical company, meaning it does not yet have a product on the market generating revenue. Its business revolves entirely around the discovery, development, and clinical testing of new drug candidates. The company focuses on treatments for metabolic and endocrine disorders.

Currently, their lead drug candidate is VK2809, an orally available small molecule, which has completed Phase 2 clinical trials for the treatment of NASH. They have presented data showing improvements in various metrics related to liver health in patients with NASH. They also have VK2735 and VK2735 and VOYAGE as other drugs in the pipeline which are being explored for the treatment of various conditions such as metabolic disorders, glucose intolerance and fibrotic liver disorders.

  • Revenue Model:
    • As a clinical-stage company, Viking currently has no product revenue.
    • Its revenue potential is entirely dependent on the successful development and commercialization of its drug candidates.
    • Future revenue streams would derive from licensing agreements, royalties, and product sales upon regulatory approval.
  • Industry Trends:
    • The biopharmaceutical industry is highly competitive, with significant R&D expenditures and regulatory hurdles.
    • The market for treatments for metabolic and endocrine disorders is large and growing, driven by the increasing prevalence of related diseases, such as nonalcoholic steatohepatitis (NASH), obesity, and type 2 diabetes.
    • There is a growing trend towards oral, convenient therapies that are able to avoid more complex treatments for a wider range of patients.
    • Regulatory environment is constantly changing and requirements by different authorities are different around the globe.
    • Patent protections are important, but frequently challenged.
  • Margins:
    • As a clinical-stage company, Viking is currently operating at a loss.
    • It’s profitability relies heavily on the success of their clinical trials and their ability to gain regulatory approval.
    • Future profit margins will depend on various factors, such as manufacturing costs, marketing expenses, and pricing power.
  • Competitive Landscape:
    • The biopharmaceutical industry is intensely competitive with numerous established companies, and other smaller, more specialized biotech businesses.
    • Viking competes with companies developing treatments for NASH and other related disorders.
    • Major competitors in the NASH space include established companies such as Madrigal Pharmaceuticals (MDGL) and Intercept Pharmaceuticals (ICPT), who have also undergone intense scrutiny for their lead drug and have faced challenges in commercialization.

  • What makes them different?:

  • Viking has a pipeline mainly focused on NASH and other metabolic and endocrine disorders. Their lead drug candidate, VK2809, has shown significant promise as a possible oral, small-molecule therapy for NASH, which could lead to ease of treatment and greater compliance from patients. The other drug candidates also focus on similar categories, and are generally not for more common diseases such as cancer. * The company has shown potential to develop and license drugs, with several drug development programs ongoing.

Financials Deep Dive:

Viking Therapeutics financial reports show a company in a relatively early stage, which is typical of a pre-commercial-stage biotech company. The company relies on funding from cash generated through equity sales and debt to finance its operations.

  • Cash Position:
    • Viking has relied on equity sales and financing in order to continue the progress of the trials, since there is no income generation from any drugs. This means they’re burning capital.
    • At the end of September 30, 2024, Viking Therapeutics had cash and cash equivalents totaling $193.4 million, which shows cash reserves are good, however they also have very high expenses (more on that later) meaning that runway is not as long as what you would normally see.
  • Profit and Loss:
    • Viking operates at a loss.
    • The 9 month loss for 2024 was $(180,432,000) compared to a loss of $(145,864,000) for the same period in the prior year, showing the burn is accelerating.
    • The revenues were near-nil, as this is a clinical stage company.
    • Research and development is $170,000,000 (9 months ended September 30, 2024) and $108,000,000 (9 months ended September 30, 2023). This is a large increase, reflecting the ongoing phase 2 and 3 clinical trials and investments into R&D for more pipeline drugs.
    • General and Administrative expense also saw an increase, as they also expanded over the last year to accommodate the trials and the overall growth of the company.
    • They are consistently reinvesting their cash into new research activities.
  • Balance Sheet:
  • Total assets are at $462,804,000, with the cash being the greatest part.
  • A good portion of liabilities are current liabilities with the major part being accounts payable and accrued liabilities of about $52 million. They also have an operating lease liability of approximately $23 million.

  • The equity is $424 million, mainly consisting of additional paid in capital and accumulated deficit, showing that the company is mostly funded by equity and has consistently been operating at a loss.

  • Debt:
    • There are no reported long term debt in this balance sheet.
    • They are planning to use debt financing for expansion, so that will be important to observe in next coming reports.

Moat Assessment (1/5):

Viking Therapeutics’ economic moat is almost non-existent as of now, as it does not have any drugs on the market generating revenue.

  • Intangible Assets: While their clinical-stage drugs have scientific potential, it is still uncertain if they have any protection from competitors in the market. There is a chance that patents of other companies would still be able to effectively limit VKTX’s prospects.
  • Switching Costs: The drug market is generally one where switching costs are low, because if a better and more effective treatment arises, the patient will more than likely switch to it. This means there is no switching cost moat for this company’s products.
  • Network Effects: There is no network effect that is at play here. A pharmaceutical company can generate demand for its products through advertisement or by directly working with doctors, so the network does not matter.
  • Cost Advantage: At this point there is no indication if they can have a durable cost advantage. If they manage to have a product on the market, it will have to compete with other companies which produce similar drugs but with lower cost of producing it. Therefore based on this evaluation, the moat is assigned a low rating of 1/5.

Risks to the Moat and Business Resilience:

  • Clinical Trial Risk: As the company’s lead drug candidates are in clinical trials, the chance of negative results and delays are a major risk.
  • Regulatory Approval: Even if successful in clinical trials, there is no guarantee the drug will receive FDA approval. Regulatory approval is a long and arduous journey.
  • Commercialization Risk: Even if they get through clinical trials and regulatory approval, a drug could be commercially unfeasible to sell because competitors offer more effective, cheaper, or more easier to use drugs.
  • Competition: There are plenty of competitors with similar drugs in pipeline, and these competitors may get to market first, stealing VKTX’s potential customers.
  • Reliance on Funding: VKTX relies heavily on future funding in order to continue its operation. An equity financing or taking out debt can negatively affect the value and increase risk for the current investors.
  • Debt Repayment Risk: If debt is required as a method of financing, the company might have a difficult time paying back it.
  • Patent and Intellectual Property Risk: Their intellectual property rights (patents and trademarks), as well as those from its licensors, may be challenged or made void. If this happens, that can hurt their pricing power and ability to sell the drug.
  • General Economic conditions: General economic conditions can negatively impact the sales and profits, since medical expenses would be a non-priority for most customers in case of recessions.

While these risks are formidable, the company’s resilience lies in its focus on specific, hard-to-treat diseases and its pipeline of varied drug candidates. They have also shown willingness to continue research efforts and also raise additional funds to combat the challenges. They have done well to raise funds in previous years, allowing the program to move steadily forward.

Understandability: 3/5

VKTX is an easier-to-understand business than most other biotech firms, because they mostly focus on the development of drugs for specific areas. It’s easy to understand what NASH is, and other similar problems they are targeting. Also, they are looking for solutions for specific problems, instead of a shotgun approach of many different types of diseases. However, it can still be complex to understand the mechanics of phase 2 and 3 trials, and also understand the regulatory pathways for the approval of the drugs. There are a lot of accounting procedures related to biotechnology, and this needs some attention in detail to properly understand what it is about. Based on these complexities, I would place their understandability level at 3/5.

Balance Sheet Health: 3/5

VKTX’s balance sheet shows a company in a state of transition. They are consistently raising capital, but also burning cash at a very high rate. They have a positive net current asset, and currently have no significant debt, which makes them safer than companies with large amounts of debt. However, their equity shows that they are consistently having losses, and so that will continue to hurt the value of the company. Further, given the high expenses required for clinical trials, they will also need more money in the future. Therefore it cannot be said that their financial situation is completely safe. Given the current situation, I would place their balance sheet health at 3/5.

Recent Concerns/Controversies:

  • In recent reports, the company is mentioning that it might need to raise additional funding in the future, as its programs require continuous investment into clinical trials, and the current revenue is zero. There have also been multiple occasions where their drug results have been delayed, or the trials have had to be modified or even stopped. While they have shown signs of improvement, they have not yet brought a drug to commercialization. These things weigh heavily on investor perception and the trust of management to see through the current plans.
  • A lawsuit was initiated against the company by a research partner. The matter was in the hands of the court in order for a decision, so they were waiting on legal proceedings to conclude it. This also caused more concern for the investors as it adds legal/lawsuit risk to the already risky company. The recent development is that a settlement had been reached, which should make the investors more confident about the company’s leadership to handle such issues.