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Is Viking Therapeutics Stock A Buy On The Dip?
Viking Therapeutics (NASDAQ: VKTX) is an anomaly of sorts. Despite another underwhelming year for biotech stocks, the metabolic disease specialist has, so far, delivered a staggering 208% return on capital for shareholders in 2024.
The reason? Investors have flocked to the biotech stock in response to its experimental weight loss therapy, VK2735. This is a peptide GLP-1/GIP dual agonist being trialed in both a subcutaneously injected and an oral dosage form.
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What's the big deal?
GLP-1-based weight loss medications from Novo Nordisk (NYSE: NVO) and Eli Lilly (NYSE: LLY) have experienced unprecedented demand. Doctors have been writing prescriptions faster than the drugs can be manufactured, creating widespread shortages, even though some insurance companies refuse to cover them.
Given this favorable dynamic, Novo Nordisk and Eli Lilly have been racing to develop another batch of next-generation weight loss drugs to secure their market positions for the long term.
However, Wall Street thinks the global obesity market is so large that it could comfortably support multiple megablockbusters, or drugs with sales exceeding $5 billion per year. VK2735, for its part, has been pegged as a potential $21 billion a year therapy by some analysts -- that is, if it can gain timely approvals in both the U.S. and the European Union.
An unexpected dip
Despite its sizable commercial opportunity in the weight loss segment, Viking's stock dipped by more than 10% earlier this week following a phase 2 trial update for its biopsy-confirmed non-alcoholic steatohepatitis candidate, VK2809. Adding to the mystery, VK2809's phase 2 trial data appear to warrant advancing the drug into a pivotal-stage trial, adding another potential value driver to Viking's line-up.
The drug's commercial opportunity has diminished of late, thanks to the apparent utility of GLP-1 medications in this setting, along with the Food and Drug Administration (FDA) approval of Madrigal Pharmaceuticals' Rezdiffra last March. But a sell-off on this update seems unwarranted.
Short-term thinking prevails
Why is Viking stock so volatile? Novo Nordisk and Eli Lilly have proven beyond a shadow of a doubt that unprecedented demand exists for GLP-1-based medications. The weight loss drug market is poised to break multiple sales records over the next 10 years.
Yet the stock market isn't sure what to make of smaller companies like Viking that are jockeying for a position in the weight loss category. As a result, day traders seem to have taken control of the stock's short-term trajectory.
After all, this VK2809 data reveal should have been a non-event for the most part, regardless of the outcome. VK2735 is the company's primary value driver due to the enormous commercial opportunity represented by obesity, combined with the increasingly murky outlook for non-alcoholic steatohepatitis drugs, in general.
VK2809 may still have a role in advancing the space but probably no longer holds serious potential as a blockbuster drug -- at least not as a monotherapy. Viking's management seemingly acknowledged this fact by refusing to outline any concrete development plans for the drug beyond stating that it plans to hold an end-of-phase 2 meeting with the FDA soon.
None of these developments should have been a surprise to stakeholders.
Is Viking Therapeutics a buy on this dip?
Viking could be a diamond in the rough for patient investors. The company holds a promising weight loss asset, which could drive a lucrative partnership or a buyout at a hefty premium.
Still, Viking depends on positive clinical trial data to justify its valuation. Any major setbacks in the clinic are sure to trigger a dramatic sell-off. Therefore, this promising biotech stock isn't for the faint of heart.
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George Budwell has no position in any of the stocks mentioned. The Motley Fool recommends Novo Nordisk. The Motley Fool has a disclosure policy.
