UBS Just Initiated Coverage of Viking Therapeutics With a Buy Rating and a $94 Target. Here's the Bull Case.

Viking Therapeutics (NASDAQ: VKTX) received a new buy rating from UBS on Oct. 14, with analyst Joon Lee assigning the stock a 12-month price target of $94. With Viking shares trading around $26.75, that target suggests potential upside of approximately 250%.

UBS believes Viking's experimental weight loss treatment, VK2735, could deliver substantially greater weight loss than today's leading medications. The firm pointed to clinical data showing the drug could produce roughly twice the weight loss of semaglutide and 1.5 times that of tirzepatide.

Those are encouraging projections, although they aren't based on head-to-head clinical trials. Still, Viking's candidate has produced some impressive results, and the company is now conducting late-stage studies involving thousands of patients.

Results matter

VK2735 works by activating two hormones that regulate appetite and blood sugar: GLP-1 and GIP. It's the same general approach used by Eli Lilly's (NYSE: LLY) blockbuster obesity medication Zepbound, generically known as tirzepatide. Novo Nordisk's (NYSE: NVO) Wegovy (aka semaglutide), meanwhile, targets GLP-1 alone.

Viking's injectable treatment produced average weight reductions of up to 14.7% after just 13 weekly doses in its phase 2 Venture trial. Patients were still losing weight when the study ended, suggesting that longer treatment periods could produce greater reductions. More recent clinical trial results have strengthened that argument.

Image source: Getty Images.

In September, Viking reported results from a separate study involving approximately 180 adults with obesity. Patients receiving weekly VK2735 injections lost roughly 16% to 19% of their body weight after 21 weeks. An exploratory group that continued to receive weekly treatments achieved an average weight reduction of 21.7% after 33 weeks.

To put that in perspective, for someone weighing 250 pounds, a 21.7% reduction would represent approximately 54 pounds. Make no mistake: These results are promising, but differences in trial design, patient populations, and treatment duration make direct comparisons with approved obesity drugs unreliable.

Less frequent injections could provide another advantage

The trial results published in September also demonstrated that patients might not need to continue their weekly injections indefinitely. After an initial 21-week treatment period, some participants switched to less frequent injections for another 12 weeks.

Patients receiving injections every other week maintained up to 97% of their previous weight loss. Those receiving monthly injections maintained up to 90%.

Viking is developing a weight loss pill, too

Viking isn't relying exclusively on injections. On Oct. 14, the company announced that it had initiated its Phase 3 Sunrise clinical program for an oral version of VK2735. The program includes two studies. One will evaluate adults with obesity or overweight without diabetes, while the other will focus on patients with type 2 diabetes. Both will evaluate once-daily treatment regimens over 68 weeks.

Earlier phase 2 results showed that patients taking oral VK2735 lost up to 12.2% of their body weight after 13 weeks. Up to 80% of treated participants lost at least 10% of their body weight, compared with just 5% receiving placebo.

The stock is not without risk

Viking is still a clinical-stage biotechnology company -- in other words, it does not have any approved commercial products on the market. It will also need plenty of cash to continue moving forward with its research and development. As of Sept. 30, Viking held approximately $960 million in cash, cash equivalents, and short-term investments, up from $502 million at the end of June. That increase was the result of a September financing effort that raised approximately $575 million through stock and convertible debt offerings, generating roughly $548 million in net proceeds.

With multiple phase 3 trials underway, Viking's development costs remain quite high. However, its September financing significantly reduced near-term funding concerns. The company still faces the possibility of future share dilution, though, particularly if its clinical development or commercialization efforts prove more expensive than anticipated.

Competition is another concern. Eli Lilly and Novo Nordisk already have established weight loss franchises, significant manufacturing capabilities, and substantial resources for developing new treatments. And the promising early results for Viking's candidates don't guarantee regulatory approval.

Is UBS right about Viking Therapeutics?

UBS' $94 12-month price target for Viking is aggressive, but there are several factors supporting that bullish outlook. The biotech's injectable treatment candidate has produced substantial weight loss in trial participants, its maintenance study suggests that less frequent dosing could be a viable course for weight maintenance, and its oral formulation has advanced into phase 3 trials. The company also fully controls its lead drug rather than sharing ownership with a larger pharmaceutical partner.

The biggest question is whether Viking will be able to reproduce its earlier clinical results in larger, longer studies while maintaining an acceptable safety profile. If it can, VK2735 could become a serious competitor in the weight loss drug market, potentially attracting commercial partnerships or even acquisition interest for the company.

If you're willing to accept significant clinical and financial risk, Viking stock offers considerable upside potential. But UBS' $94 price target remains an analyst estimate, not a guarantee of where the stock is headed.

Jeff Siegel has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Eli Lilly, Novo Nordisk, and Viking Therapeutics. The Motley Fool has a disclosure policy.