Viking Therapeutics(NASDAQ: VKTX) soared into the spotlight about a year ago when it delivered promising data on a drug candidate that aims to compete in an area of very high demand: weight loss. The stock surged more than 120% in one trading session after Viking spoke about VK2735, a candidate that works in the same way as big pharma Eli Lilly's blockbuster drugs Mounjaro and Zepbound.
Since, Viking's clinical data remain strong, and the company aims to launch a phase 3 trial for the injectable version of VK2735 in the second quarter. It's also advanced an oral version, starting a phase 2 trial late last year. In spite of the progress, the stock has given up a great deal of its gains -- falling 65% from its 2024 peak.
Last week, though, Viking shares popped in one trading session, climbing as much as 15%, on reports that Pfizer is considering the company for a potential takeover. Though the reports are unconfirmed, investors have in the past noted that Viking could make an attractive target for a bigger player aiming to get in on the high-growth weight loss drug market. Considering this and Viking's clinical trial advancements, is the stock a buy right now?
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Viking's 121% increase
First, let's back up and take a look at the company's story over the past year. Viking shares originally surged in February of last year after the company said VK2735 in injectable form met its primary and all secondary endpoints in a phase 2 trial. The candidate was safe and well-tolerated and resulted in up to 13% mean reduction in body weight relative to placebo after 13 weeks.
VK2735, like Lilly's tirzepatide -- the active compound in Mounjaro and Zepbound -- is a dual GIP/GLP-1 receptor agonist. It acts on hormonal pathways involved in the digestion process, controlling blood sugar levels and appetite.
Now, you might wonder why Viking's drug candidate is getting so much attention considering Lilly already sells weight loss drugs of the same class. This is due to the great need for these products. Lilly's tirzepatide was on the U.S. Food and Drug Administration's shortage list since 2022 until just recently because demand greatly surpassed supply. And a similar compound -- semaglutide -- from Novo Nordisk also was on the shortage list since 2022 until just days ago.
A market potentially heading to $130 billion
On top of this, analysts predict the weight loss drug market could grow considerably in the coming years. Back in 2023, the market for weight loss drugs was about $6 billion, according to Goldman Sachs Research. The firm now expects that market to reach $130 billion by the end of the decade.
All of this means there's plenty of room for a smaller player like Viking to carve out market share and score a win even if Lilly and Novo Nordisk continue to dominate the market. There's also the possibility, as mentioned above, that Viking could attract a buyer. Investors could gain if Viking takes its candidate all the way through development and commercializes it, and they also may benefit if, instead, a bigger player acquires Viking to gain access to its promising candidates.
The biggest risk for Viking
The main risk for Viking and its investors would be a setback or failure of the weight loss candidate during late-stage development, but this is a risk investors face when they buy shares of any biotech company, particularly one that doesn't yet have products on the market.
As for the financial situation, it's unsurprising that Viking's net loss is widening -- it reached $35 million in the recent quarter from $24 million in the prior year -- since at this point the company is heavily investing in research and development. And a very positive point is Viking has a solid cash position, at more than $900 million as of year-end. This is key because it means Viking has the resources to shepherd VK2735 through the final stages of development.
Now, let's get back to our question: Is Viking stock a buy today? If you're looking for a biotech with a reasonably strong chance of participating in a high-growth market and you accept the risk that goes along with investing in any clinical stage biotech, Viking could make a great fit for your portfolio. The stock's declines in recent months have left it at a level that looks reasonable considering the weight loss drug market opportunity and Viking's progress so far, making the stock an excellent buy right now.
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Adria Cimino has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Goldman Sachs Group and Pfizer. The Motley Fool recommends Novo Nordisk and Viking Therapeutics. The Motley Fool has a disclosure policy.
