Oppenheimer Thinks Viking Therapeutics Stock Can Soar to $120. Here's the Math Behind the Ultra-Bullish Call.

Oppenheimer analyst Jay Olson recently raised his price target on Viking Therapeutics (NASDAQ: VKTX) stock to $120 from $100 and maintained an outperform rating. Given that the stock price at the time of writing is merely $28.50, hitting the price target would represent a quadrupling in the share price. It's an exciting prospect, so here's some of the reasoning behind the bull case for the stock.

Wall Street divisions over Viking Therapeutics and VK2735

Before getting into the details of the bull case, it's worth noting that there's a wide range of opinions on the stock on Wall Street, and on its lead pipeline drug, VK2735, a GLP-1 and GIP agonist.

According to Visible Alpha's current price targets for the stock, analysts at Canaccord and Raymond James are just shy of Oppenheimer's target, an H.C. Wainwright analyst is at $102, and a further three analysts are in the $70 to $90 range.

A Goldman Sachs analyst, Richard Law, has the lowest target of $38 on the stock. This target is understood to emphasize that the second part of the maintenance trial (where oral maintenance doses of VK2735 will be tested) is more significant for the company than the recently completed first part. That first part only tested injectable VK2735 maintenance doses for 13 weeks after an initial injectable treatment over 21 weeks.

The last point is a fair one, not least because the phase 2 data from the oral dosing trial were disappointing for safety and tolerability , with 20% of treated patients discontinuing treatment due to an adverse event. Since a major selling point of VK2735 is its potential to be used as a dual combination therapy (for example, rapid weight loss with an initial injectable treatment followed by a more convenient oral dose), it's fair to argue that the currently running, second part of the maintenance trial is more important. Results are due in 2027.

That said, Viking's management will have learned a lot from the phase 2 oral VK2735 trial (VENTURE-Oral). It will make adjustments (potentially reducing tablet size, titration aggressiveness, and dose size) in the phase 3 oral trial (beginning in the fourth quarter) and in the current maintenance trial.

Oppenheimer's price target hike

When analysts model biotech companies, they typically estimate their drugs' peak sales, discount cash flows from those sales, and then multiply them by a "probability of success" (PoS) to produce an adjusted expected value. This is used to model the stock and create a price target.

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It follows that when a drug receives positive data from a trial, as Viking recently did with the maintenance trial, it's induced to raise the PoS and may raise the ceiling on peak sales due to a stronger belief in its commercial potential.

Indeed, Olson reportedly raised his estimate for PoS from 80% to 90% after the maintenance study's results. It's a high PoS, but not out of the ballpark of the Visible Alpha Wall Street consensus for VK2735's PoS of 76.5%.

Nevertheless, raising a PoS for VK2735 while nudging up sales estimates is a perfectly valid reason to raise the stock price target.

Why Viking Therapeutics investors have reason for optimism

Furthermore, Wall Street estimates for VK2735 look reasonable. The consensus calls for unadjusted sales of $1.5 billion in 2030, rising to $6.5 billion in 2035. The most similar approved drug to VK2735 is Eli Lilly's (NYSE: LLY) tirzepatide (Mounjaro for diabetes and Zepbound for obesity, only available in injectable form), for which analysts expect about $80 billion in total sales (almost $52 billion for Mounjaro and $28.5 billion for Zepbound) in 2030.

Image source: Getty Images.

Since the phase 2 VK2735 subcutaneous trial (VENTURE) produced a mean weight loss of 14.7% at its maximum dose after just 13 weeks, compared to a phase 3 tirzepatide (SURMOUNT-1) trial that produced a mean weight loss of 20.9% at its maximum dose after 72 weeks, this suggests (but does not conclude) that VK2735 may generate a steeper velocity of weight loss.

If this hypothesis is confirmed in the phase 3 subcutaneous VK2735 trial, alongside good tolerability data over a long period, with good data from the second part of the maintenance trial, then investors have a strong reason to believe VK2735 can take market share from tirzepatide. $80 billion in 2030 is a very large number to take a small share from.

That outcome would justify Oppenheimer's optimism.

Lee Samaha has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Eli Lilly and Goldman Sachs Group. The Motley Fool recommends Viking Therapeutics. The Motley Fool has a disclosure policy.