Viking Has A More Attractive M&A Valuation Than Madrigal, Raymond James Says In Upgrade

Viking Therapeutics Inc VKTX, which focuses on therapies for metabolic and endocrine disorders, recently presented Phase 2 data for its non-alcoholic fatty liver disease, or NAFLD, treatment candidate VK2809 at the annual meeting of the American Association for the Study of Liver Diseases.

The Analyst

Raymond James analyst Steven Seedhouse upgraded Viking from Outperform to Strong Buy and reiterated a $43 price target.

The Thesis

Between Viking's lead asset VK2809 and Madrigal Pharmaceuticals Inc MDGL's MGL-3196 — both of which are thyroid hormone beta receptor agonists —  VK2809 is more potent and tolerable, Seedhouse said in the Monday upgrade note, citing his conversations with investors and physicians. (See his track record here.) 

This conviction has increased after the AASLD meeting, the analyst said.

Alanine aminotransferase, an enzyme found in liver and kidney cells that is indicative of liver damage, transiently increased from the baseline within the first week of the study and subsequently declined, Seedhouse said. By 16 weeks, the enzyme level was lower than the placebo and baseline, he said. 

This allays concerns about the candidate's hepatotoxicity, Seedhouse said. 

The aggregate MRI-PDFF-biopsy correlation data across non-alcoholic steatohepatitis, or NASH, studies increased confidence that VK2809's potency will translate into a greater biopsy benefit, the analyst said. 

Seedhouse expressed comfort with the development timeline for VK2809, with Phase 2b biopsy study enrollment likely to be completed faster than expectations. If the company uses a nine-to-12-month biopsy endpoint, the Phase 2 data is likely to be available by the fourth quarter of 2020, he said.

"Finally, we think the M&A premium previously in Madrigal will shift to Viking, which is at a more attractive valuation to effectuate M&A if there is a mini-run on NASH assets in 2019." 

Other Analyst Takes 

In the aftermath of the AASLD presentation last week, Cantor Fitzgerald analyst Alethia Young said in a Nov. 13 note that VK2809 could follow the path paved by MGL-3196, but it may have to be tested in a Phase 2b study before advancing to pivotal stage development.

H.C. Wainwright analyst Joseph Pantginis said in a Nov. 8 note that the focus is now on an IND filing for NASH, with the company projecting a first half of 2019 timeline. 

The Price Action

Viking Therapeutics shares were up 1.12 percent at $11.77 at the time of publication Monday. 

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