Biotech Values

[Mufaso]

The Streetwise column by Barrons Jack Hough is widely read. This column is something I follow often as Jack is good at identifying trends. I look at him as writing "Canary in the coal mine" articles and that he is sort of a "Captain Obvious of Wall Street" at times. Since this column is behind paywall and not everyone has access to it, I thought I'd summarize what I thought the main points were to add to what Dew already posted.

• In addition to the Magnificent 7 we now have the Obesity 2. Eli Lilly is now #9 by market value in the S&P 500. Then there is Novo. If it was an American company in the S&P NVO would now rank number 12. (LLY is up from 100 million and market value five years ago to 600 billion today.)
  
• He notes that a billion people worldwide are too heavy and that the new meds work. If consensus forecasts for obesity meds prove accurate they will outsell immuno oncology drugs in the not too distant future.
  
• Both Lilly and Novo set out to treat diabetes and ended up with drugs that treated obesity. Add to that the fact that obesity is surrounded by comorbidities like heart disease, sleep apnea, asthma, knee and hip deterioration, cancer and an inflammatory condition called Nash. (Mufaso add comment-Nash is another huge market opportunity and it's relationship to obesity is especially significant not unlike the relationship between diabetes and obesity.)
  
• Valuations on Lily and Novo are sky high. Lilly trades at 90 times this year's earnings or 20 times estimated earnings five years from now. For Novo the numbers are 39 times and 18 times. For investors drawn to the obesity market but put off by these valuations, Jack notes that Jay Olsen has two ideas Viking therapeutics and Amgen. Both VKTX and AMGN have obesity drugs that could be paired with other drugs that treat a significant comorbidity of obesity.
  
• Amgen has repatha a blockbuster injectable for treating high levels of bad cholesterol. It has a future obesity treatment that the company hasn't said could be combined with repatha. If it were to be feasible it would be are really potent cardiovascular risk factor reduction combination according to Jay Olsen.
  
• The same goes for Viking and Nash. It has a pill in development that was shown this year to have sharply reduced liver fat in phase two trials. ( Mufaso add comment- the article mistakenly referred to the oral form of VK2735 as being in phase two- in reality the oral pill form only completed phase one. It was being injectable form of VK 2735 which reported significant liver fat reductions in phase two. However it is important to also note that Viking reported additional data recently on the phase one pill form of VK 2735 which showed significant reductions of liver fat as well. See #msg-173042423) The fact that Viking reported on this is very telling IMO regarding VKTX intentions on a combo with VK2809)
  
• Much of this is speculative but Amgen generates a lot of cash trading at 15 times earnings with a 3% dividend. Viking is a risky pipsqueak with no meaningful revenue predicted until three years from now. Viking shares have tripled in a year and has a market value of 1.2 billion currently.

I do believe that the Viking mention in the Barron’s column will lead to significant interest in Viking today. Given the high short position it could trade significantly higher. I don't think Viking will be a secret much longer. While VKTX is very risky near term, trial readouts on both its obesity and Nash drugs could drive outsized returns. I continue to like this risk reward profile of Viking.