Viking Therapeutics (NASDAQ:VKTX) has been my top NASH stock for the past few years due to VK2809’s performance, the company’s cash position, and the reasonable valuation. Unfortunately, the market didn’t see VKTX in the same light and the share price was down over 50% for the year despite the company’s long-term prospects. However, the tide has turned after Madrigal Pharmaceuticals (MDGL) reported that resmetirom was able to produce impressive results in nonalcoholic steatohepatitis “NASH” and liver fibrosis. The data revealed that 52 weeks of treatment of either 80 mg or 100 mg of resmetirom produced a NASH resolution of 26% and 30% respectively, verse 10% for the placebo. As a result, MDGL has moved from roughly $60 per share to nearly $300 per share… meanwhile, VKTX moved from ~$4 per share to over $9 per share thanks to VK2809 being in the same family of drugs as Madrigal’s resmetirom. This move has been a great opportunity to book some profits and move my position to a “house money” state for a long-term investment. Now, I am willing to wait and see how VKTX performs in the coming weeks to allow me to reformulate a new plan of attack for VKTX in 2023.
I intend to provide a brief background on resmetirom and review Madrigal’s data. In addition, I review how resmetirom and VK2809 are similar agents and are “joined at the liver”. In addition, I discuss why I picked VKTX over MDGL. Then, I will reveal my preliminary plans for my VKTX position in 2023, and possible entry into MDGL.
Background on Resmetirom
Resmetirom is Madrigal’s once-daily, oral thyroid hormone receptor “THR” β-selective agonist that is designed to reduce liver fat as well as reducing liver inflammation, cell death, and liver fibrosis. THR-β action is key to proper liver function, including the breakdown of liver fat. It is interesting to note that NASH patients have lower levels of THR-β receptor activity, so a drug that can help restore THR-β action in the liver should help treat the disease.
Resmetirom is currently being studied in Phase III trials and has produced strong clinical data to support its safety and efficacy, including improvements in primary causes of NASH while decreasing LDL cholesterol and additional atherogenic lipids and lipoproteins. The drug’s clinical performance has supported its potential to be the first-to-market therapy for NASH patients with liver fibrosis.
Madrigal is currently conducting four Phase III trials to demonstrate the safety and efficacy of resmetirom for the treatment of NASH. These trials include MAESTRO-NASH, MAESTRO-NAFLD-1, MAESTRO-NAFLD-OLE, and MAESTRO-NASH Outcomes.
Joined At The Liver
Viking Therapeutics develops novel therapeutics for patients suffering from disorders related to the metabolic and endocrine systems. Recently, their stock soared on the heels of Madrigal Pharmaceuticals publishing the results of their successful Phase III MAESTRO-NASH biopsy trial of Resmetirom, a potential new treatment for NASH and liver fibrosis. Madrigal publicized that biopsy endpoints were achieved with statistical significance for both doses. In addition, the company reported that “multiple secondary endpoints were achieved”, including a reduction in liver enzymes, atherogenic lipids, lipoproteins, fibrosis biomarkers, and imaging tests.
Moreover, the company reported that resmetirom was safe and well-tolerated at both doses.
Accordingly, Madrigal plans to file an NDA to approve the drug as a treatment for non-cirrhotic NASH with liver fibrosis.
Madrigal’s NASH results sent MDGL sky-high along with VKTX thanks to Viking’s own VK2809 is part of the same class of drugs as resmetirom and VK2809 has previously established equally strong results in its own trial. It is important to note that the patients in these trials were different, so resmetirom’s trial does hint that VK2809 will be operative in that patient population, thus expanding its potential use. In fact, VK2809 produced strong data back in 2018 that caused VKTX to nearly double, and MDGL had a sympathetic response.
VK2809’s Phase II study hit its endpoints, with VK2809 generating considerable decreases in liver fat, on top of improvements in LDL cholesterol. VK2809 caused a 45% median decrease in liver fat content, compared to 19% in the placebo group.
Additionally, about 70% of patients on VK2809 had a sustained response at 12 weeks with a greater than or equal to 30% relative reduction in liver fat content from baseline. Astoundingly, no serious adverse events were reported.
Just like resmetirom, VK2809 data is pointing to a potential best-in-class NASH therapeutic with multiple advantages over other classes of NASH drugs.
Considering these advantages, I believe these drugs could hit blockbuster status in an estimated $21.5B NASH market in 2025.
Considering these drugs are in the class; are targeting the same patient population; and have had a strong performance in the clinic; I would say that resmetirom and VK2809 are “joined at the liver” where it is likely that these drugs will share a similar outlook and will be direct competition if they make it to the market. As a result, we have to expect the tickers to have a similar performance until the drugs can differentiate in the clinic or on the market.
Viking expected to complete enrollment in the Phase IIb VOYAGE trial by the end of 2022, and report data for the primary endpoint in the first half of this year. So, we should have a better idea of how VK2809 stacks up to resmetirom, and get an update on the company’s plans to move VK2809 closer to the finish line in the near future.
Why I Pick VKTX Over MDGL
Considering resmetirom’s recent data and its potential to be the first on the market, one might wonder why I picked VKTX over MDGL. I picked VKTX to be my NASH stock because of the company’s financials and their other pipeline programs. In terms of cash position, Viking finished Q3 with ~$155M in cash, cash equivalents, and short-term investments, and they only burned ~$47M in the first three quarters of 2022.
So, we can say that Viking still has a healthy cash position that may be adequate to supply the company long enough to get them to a registrational trial and keep the pipeline moving.
Indeed, Madrigal finished Q3 with roughly $153M in total cash and short-term investments, and they just secured over $300M in funding. So, Madrigal’s financials are fairly healthy and could be adequate to get them onto the market. However, Viking has the advantage of having an attractive pipeline with multiple assets that are already in the clinic.
Not only do these assets diversify Viking beyond VK2809 and NASH, but the company’s other assets have best-in-class potential. Meanwhile, Madrigal is essentially all-in on resmetirom and NASH-related indications.
A regulatory failure with resmetirom would crush the stock and set the company back for a prolonged period of time. Personally, I like companies like Viking, which have multiple assets that are in a related field but are still diversified enough to absorb a major setback. As a result, I believe VKTX is the better option at this point in time.
A Downside Risk To Consider
In my previous VKTX article, I discussed why I thought VKTX’s price action was so “sluggishness” despite having significant upside potential. At that time, the company had the data and the cash to justify a much higher valuation, yet, the share price drifted sideways for months and months. Ultimately, I blamed the market’s apprehension on the competition and the fact there were over 40 NASH programs in Phase II or Phase III at that time. I concluded that the market is waiting for the data to sort out who will be first-in-class and best-in-class before picking a winning investment. I would have to say Madrigal has become a top contender with their results and their position in the race to be first. However, it is possible that a vastly superior drug or treatment could conquer the NASH market shortly after Madrigal or Viking move to commercialization. Consequently, investors need to accept the possibility that VKTX and MDGL will experience elevated volatility for a prolonged period of time.
Considering this point, I assigned VKTX a conviction level of 3 out of 5.
Formulating A Plan For 2023
After nearly a year of making minuscule additions, the spike following Madrigal’s readout allowed me to book profits as VKTX blasted through my Sell Targets. Now my VKTX position is in a “House Money” state, meaning that I have completely removed my original investment and only profits remain. Now, I am going to wait and see how VKTX performs over the next couple of months before adjusting my Buy Threshold and Sell Targets. Once the company reports data for VK2809 in the first half of this year, I will look to set a few orders at my new Buy Targets and will restart my accumulation of VKTX at an attractive valuation to maximize my risk reward.
It is important to note, I am not rushing to get back in after booking profits in this market environment.
VKTX Daily Chart Enhanced View (TrendSpider)
But once I do restart my accumulation, I will immediately look to transition my reloaded VKTX position to a “house money” state to hold for at least four years with the expectation VK2809 becomes the best-in-class NASH product and/or the company is acquired for a premium price.
As for MDGL, it has moved up on the Compounding Healthcare watch list for a spot in the “Bio Boom” speculative portfolio. I believe Madrigal’s potential to be first on the market and single asset pipeline makes it a prime buyout candidate. I plan on waiting for a mean reversion move in the coming months that could provide an opportunity to enter a position at a reasonable valuation.