Viking Therapeutics (VKTX 0.78%) isn't a household name, but if its plans to commercialize a powerful anti-obesity medicine come to fruition, it may well become one. Though it has yet to commercialize a drug, unlike its primary big pharma competitors, the data about the performance of its lead program look considerably better than the drugs currently on the market.
So is this biotech a good fit for your portfolio, or will it struggle to survive even if its candidate reaches the market? Let's evaluate it based on what it has in hand, and what risks face investors who take the plunge.
Why this stock is a smart pick right now
Viking's lead candidate is currently called VK2735, and it's intended to treat obesity. Per the phase 2 clinical trial results published in late February, the biotech may have a winning molecule on its hands. After 13 weeks of treatment, people with obesity experienced a decline in their weight of 14.7%, far more than the 1.7% reduction experienced by those who were administered a placebo.
Crucially, the company didn't see any evidence to support the idea that the weight-loss process had hit a plateau.
That means several things. First, it means that the candidate could be the most effective weight loss drug yet discovered, as the ones currently on the market have a point after which further doses do not equate to further weight loss. Second, it means investors will get more information about how effective it can be over long periods, and at higher doses, during the phase 3 study that will soon begin. And that could set the stock up for a major catalyst.
Management reports that the biotech currently has around $963 million in cash, equivalents, and short-term investments. Therefore it should have enough money to proceed with the next set of clinical trials, while advancing the other programs in its pipeline at the same time.
Of particular interest is the oral formulation of VK2735, which is currently in early-stage clinical testing. Taking a daily weight loss pill would be preferable to getting a weekly injection, so the addressable market size of such a candidate would be even larger, assuming its weight loss effects and side effects remained comparable to the injectable format.
Make sure you're comfortable with this category of investment
Viking's setup is favorable right now, and it has a few obvious avenues in its pipeline to sweeten the pot for investors who buy its stock soon. For a biotech stock, it's not as risky as other businesses in roughly the same state of maturity. With that said, as a biotech, it's still on the riskier side of the investment spectrum.
As good as its clinical trial data has been so far, there's always a risk that regulators will take issue with some of what the company presents in its approval application packet. With the stock currently at great heights compared to where it was at the start of the year or earlier, there's a concrete risk of a sharp drawdown if there's a bump in the road.
A decline of 30% wouldn't be surprising in the event of a moderate problem that requires it to conduct additional clinical trials, or other research and development (R&D) work, to remain in good standing with regulators.
Then there's the risk that even if its medicine is approved, it will face fierce competition from the obesity market's newly anointed royalty, Novo Nordisk and Eli Lilly; both companies are colossal and far more entrenched than Viking, not to mention having vast distribution and marketing resources.
It's likely that even those two won't be able to starve the biotech completely, given the massive size of the obesity drugs market. But in the long run, when the bottom of the market is finally in sight and stealing market share from other competitors becomes necessary for further growth, Viking could be at a larger disadvantage than it is right now.
Nonetheless, Viking Therapeutics' growth potential is tremendous, and it will probably have ample opportunity to expand its addressable market and develop additional medicines. So if you can accept the general risks associated with biotech and competition, and you're looking for a stock that'll drive growth for your portfolio regardless of its presently high valuation, buy away.
