Last Week, Virtus LifeSci Biotech Clinical Trials ETF Climbed 10%. Why?

The share price of the top holding in the Virtus LifeSci Biotech Clinical Trials ETF, Viking Therapeutics, surged last week on positive news about its weightloss drug trials, helping the fund climb 10% in one week.

• BBC Biotech Clinical Trial fund up 10% last week and 43% in the last six months.
• Top holding Viking Therapeutics surged 121% last week on weightloss drug trial, and is up 643% over the past year.
• The anti-obesity medication market could be worth £100bn by 2030, says Goldman Sachs.

The Virtus LifeSci Biotech Clinical Trials ETF [BBC] climbed 10.2% last week to the close on 1 March, as the share price of top holding Viking Therapeutics [VKTX] surged on positive results from trials of its new weightloss drug.

The biopharmaceutical company’s stock rocketed 121% on the news last Tuesday, though it corrected 15% two days later after plans for a $550m stock offering were announced.

On 27 February, Viking reported that its phase-2 clinical trial of the receptor agonist VK2735 had been successful in treating patients with obesity, achieving “primary and all secondary endpoints”.

The second-largest holding in the ETF, Vera Therapeutics [VERA], rose a more moderate 3.6% over last week.

BBC is a passive fund offering exposure to companies held in the LifeSci Biotechnology Clinical Trials Index. It tracks the performance of biotech firms involved in clinical trials for drugs that are not yet in production or approved by the US Food and Drug Administration.

The fund has soared 43.4% over the past six months, and increased 25.7% over the 12 months.

Viking: Potential Market Leader?

The holdings in the Virtus fund are equally weighted to allow smaller companies to exert “meaningful impacts on return” following “major breakthroughs”. The top holding as of 1 March is Viking Therapeutics, with a 2.8% weighting. The San Diego-based company specialises in drugs for treating metabolic and endocrine disorders.

Viking’s recent trial showed patients who received a weekly dose of VK2735 experienced reduced body weight of up to 14.7% after 13 weeks, significantly more than those who received a placebo.

Some experts believe the company is ripe for a takeover, with analyst Andy Hsieh of William Blair saying Viking’s weightloss treatment may have a “best-in-class profile”, rivalling its leading competitors Eli Lilly’s [LLY] Zepbound and Novo Nordisk’s [NVO] Wegovy. Viking posted Q4 and full-year earnings on 7 February, saying it had ended 2023 in a “strong” cash position of $362m. A net loss of $85.9m for the year, or a $0.91 loss per share, rose from a net loss of $68.9m, or $0.90 per share, reported in 2022, which it attributed to greater R&D expenses.

Over the past 12 months, Viking’s share price has rocketed 643%. The second-largest holding in the fund is Vera Therapeutics with a 2.2% weighting. Vera also posted positive trial news in January for atacicept, its treatment for serious immunologic diseases.

Vera last reported earnings in November for Q3 2023, posting a net loss of $20.1m, or $0.45 per diluted share, an improvement on losses of $24.7m, or $0.91 per share, in the year-ago quarter.

Vera’s share price is up 578.7% over the past year.

Biotech Rebound in 2024?

Biotech is sometimes seen as a high-risk sector, as many companies are not yet generating revenues, and lead times for researching and approving drugs can be long.

2023 was a difficult year for the industry, seeing staff layoffs at over 150 pharma companies and a decline in stock market prices for many players. However, experts believe there are grounds for optimism in 2024. The US Federal Reserve has indicated it may cut interest rates this year, which could attract greater investment to the sector. Demand for anti-obesity medicines, as shown by Viking’s trial, is one area where the market may see gains. Research from Goldman Sachs in 2023 published last October suggests this space may be worth $100bn by 2030; the report speculated that approximately 15 million US adults could be taking weightloss drugs by that time.

Elsewhere, PWC predicts oncology and immunology are to see ongoing growth. The Virtus LifeSci Biotech Clinical Trials ETF also spreads its risk across other areas including gene therapy — for example, with third-largest holding Sana Biotechnology [SANA], which has 1.8% of the fund’s portfolio.

At present, a consensus of eight analysts at TipRanks rate Viking Therapeutics a ‘strong buy’; a median 12-month price target of $94.38 would represent a rise of 10.8% from the stock’s last close of $85.22 on 1 March. Vera Therapeutics is rated a ‘strong buy’ by a consensus of seven analysts, though a 12-month price target of $31 represents 36.9% downside from the stock’s last close of $49.14.