Last week ended on a disappointing note for investors of NASH drug developer Viking Therapeutics (VKTX). Successive days in the red resulted in a cumulative share loss of 13%. The sell-off was instigated by two seemingly negative events.
Firstly, Viking presented data from the Phase 2 study of VK2809 in patients with non-alcoholic fatty liver disease (NAFLD) at the annual meeting of the European Association for the Study of the Liver (EASL). The data was from a 4-week follow-up, in which patients showed enduring statistically significant reductions in liver fat content. So good news, right? Yes, but a quick glance at the results revealed that success rates had dropped, which caused alarm among investors.
Around the same time, Viking's largest shareholder, Ligand Pharmaceuticals, sold a big chunk of VKTX shares. So, following the data readout, has the biggest shareholder lost confidence in Viking’s ability to execute?
Chardan analyst Michael Morabito argues both reasons for the decline come from a misreading of the situation. In fact, Morabito implores investors to “view last week’s weakness as a prime buying opportunity.”
Morabito explains: “Although the percentage of patients considered responders for liver fat reduction (≥30% relative reduction from baseline as measured by MRI-PDFF) was decreased from week 12 in patients receiving any dose of VK2809 (from 88% at week 12 to 70% at week 16) while the percentage of placebo responders increased (from 17% to 22%), this change was largely driven by patients lost to follow up rather than loss of drug effect at week 16.”
Morabito estimates VK2809 has a 55% probability of success in NASH, which is 5% above the investment firm’s “average assumption for a Phase 2 asset in NASH.”
As for the second concern, Morabito opined, “After speaking with Viking management it is evident to us that this move was designed strictly to keep Ligand from holding 10% of VKTX outstanding shares, as Ligand currently sits at 9.9% ownership following last week's transaction. We believe Ligand is best served as a long-term holder of VKTX well into commercialization, and we view any investor concern of a near-term liquidation by Ligand as an artificial overhang on VKTX shares that presents an opportunistic long-term buying opportunity.”
Accordingly, Morabito rates VKTX a Buy, while raising his price target from $15 to $20. The implication for investors? Upside potential of a massive 210%. (To watch Morabito’s track record, click here)
The rest of the Street wholeheartedly agrees. Of the 10 analysts that have posted a VKTX review over the last three months, all 10 rate the stock a Buy. VKTX's Strong Buy consensus rating is backed by a $14.88 average price target, representing possible upside of ~131% over the next 12 months. (See Viking stock analysis on TipRanks)
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