Wall Street Says Buy the Dip in Viking Therapeutics. Here's the Bull Case

Shares of Viking Therapeutics (NASDAQ: VKTX), a clinical-stage biotech, have declined by 46% over the past two years. There are several reasons for this. First, longtime shareholders decided to pocket some profits after Viking Therapeutics reported excellent mid-stage results for its leading candidate, subcutaneous VK2735, an investigational weight-management medicine. Second, the drugmaker's phase 2 results for an oral formulation of VK2735 were somewhat disappointing due to high discontinuation rates linked to side effects.

However, Wall Street still has high hopes for Viking Therapeutics. The company's average price target of $92.58 (according to Yahoo! Finance) implies a nearly 161% upside from current levels. Why is the Street so bullish on Viking Therapeutics' prospects? Here's the bull case for the stock.

Image source: The Motley Fool.

Could Viking Therapeutics' stock more than double?

Viking Therapeutics currently has a market cap of $4.1 billion. That means Wall Street thinks it could be worth almost $11 billion within 12 months (ignoring changes to its outstanding share count). That might be a fair price for a company with a late-stage pipeline candidate that could make it a leader in the rapidly growing anti-obesity market. Viking Therapeutics has two ongoing 78-week phase 3 studies for subcutaneous VK2735, including one that enrolled overweight and obese patients who are diabetic.

The company's shares may soar if it can post excellent results from these clinical trials. The market will expect VK2735 to show a mean weight loss at least in the high teens in patients without diabetes. That may sound like a high bar, considering Zepbound, the current GLP-1 weight loss leader, posted an average weight loss of about 20.2% over 72 weeks in one phase 3 study.

However, the landscape will change significantly over the next year, with more mid and late-stage candidates posting results. It will become harder for Viking Therapeutics to impress investors, and anything substantially below a mean weight loss in the high teens probably won't cut it. The good news is that in a mid-stage study, subcutaneous VK2735 posted a placebo-adjusted mean weight loss of up to 13.1% in just 13 weeks of treatment.

It could perform significantly better in 78-week late-stage studies, perhaps even reaching an average weight loss of 25% (which isn't a stretch considering its phase 2 results), in which case, the stock will likely soar. And that's before we factor in the potential progress it could make with its oral candidate, which might move the needle as well. These wins should allow the stock to meet The Street's estimates, although perhaps not in the next 12 months -- but likely over the next two years. Does that make Viking Therapeutics' stock a buy? Hardly.

Even with the excellent mid-stage results it posted with subcutaneous VK2735, it's very possible that the medicine's efficacy will fall well short of expectations, or that it will come with too many side effects to make meaningful commercial progress. In either case, the stock will fall off a cliff. In short, Viking Therapeutics is risky, and only those comfortable with that should consider this biotech stock.

Prosper Junior Bakiny has positions in Viking Therapeutics. The Motley Fool recommends Viking Therapeutics. The Motley Fool has a disclosure policy.