Viking Therapeutics (VKTX) shares are down about 12% this morning after the company priced a $500 million raise.
Two days ago, when the stock soared on its maintenance study results, I wrote that “if management needs to dilute shareholders with a follow-on equity offering, I expect plenty of takers.”
Well, here we are.
The details
Viking announced a $400 million offering after the bell yesterday, then upsized to $500 million this morning.
- 7,857,143 new shares at $35 each, about 16% below Wednesday’s close (shares currently trading at about $36).
- $225 million of 2.00% convertible notes due 2032, convertible at about $50.75 per share
- Roughly $476 million in estimated net proceeds, before the underwriters’ options
- The money will fund VK2735’s development and commercialization, plus the VK3019 program
The real story: “Upsized”
Nobody likes dilution, and a 16% discount to Wednesday’s close is the price of raising this much this fast.
But Viking went looking for $400 million and walked away with $500 million.
That’s the “plenty of takers” part.
Convertible notes are basically a loan that can turn into stock later. If VKTX stays below $50.75, Viking pays the money back. If shares climb above it, noteholders can convert into roughly 4.4 million shares ($225 million ÷ $1,000 × 19.7044 shares per note). Meanwhile, the interest costs just $4.5 million a year (2% of $225 million).
I called out on Tuesday that Viking had plenty of cash for now, but that they’d probably have to dilute at some point soon to fund big late-stage clinical trials and prep for hopeful commercialization:
So, today’s offering effectively doubles what they’ve got.
Not bad at all.
What’s next
VK2735 is now in Phase 3 studies for obesity, and those are big, expensive trials. That’s where this money goes.
The risk is the same one I flagged on Monday: the maintenance study was early-stage, and Phase 3 has to confirm it. On top of that, any future success now gets split across a few more shares.
Up through the end of last quarter, they had about 117 million outstanding, mild quarterly dilution for a clinical-stage biotech…
But now you can add roughly 7.9 million new shares today, plus up to 4.4 million more if the notes convert.
Still, for doubling their cash on hand…not bad at all.
And if VK2735 succeeds, no one will remember or care about this dilution. It’s the price of playing in biotech – I don’t make the rules!
So what’s Viking actually worth?
Viking doesn’t have revenue yet, so the real question is the size of the prize. Morgan Stanley estimates the weight-loss drug market could be worth $150 billion by 2030. VK2735 would only need a tiny slice of that to justify a much bigger valuation than Viking’s today.
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