Shares of Viking Therapeutics (VKTX 7.92%), a clinical-stage biotech, more than doubled recently. The market started hurling money at the stock after some mid-stage clinical trial results suggested a bright future for its still-experimental weight management drug.
You don't need to know much about the pharmaceutical industry to recognize a huge opportunity for weight management treatments. That said, investing in biotechs before they have any approved products to sell entails a great deal of risk.
Let's weigh the opportunities in front of Viking Therapeutics against some of its challenges to see if it's a good stock now.
Why the stock rocketed higher
Shares of Viking shot about 121% higher on Tuesday, Feb. 27, because a candidate it's developing performed surprisingly well during a phase 2 clinical trial.
Its weight management candidate, VK2735, is an injectable therapy that activates the same pair of insulin-stimulating hormones as Zepbound and Mounjaro from Eli Lilly (LLY 1.19%). In a 174-patient study, patients were randomized to receive the maximum dose of 15 mg were 14.7% lighter after 13 weeks of treatment. Patients in the placebo group only reduced their weight by 1.7% on average.
The weight reductions that VK2735 produced appear competitive with Zepbound, and it could have a safety advantage. In placebo-controlled trials with Zepbound, patients on the drug were more than three times as likely to report nausea than the placebo group. Viking reported a nausea rate for VK2735 that was a little more than double that of the placebo group.
Since VK2735 is a long-term treatment intended for patients who are relatively healthy, minor differences regarding tolerability could have huge effects on total sales down the line.
Why Viking Therapeutics could be a great investment
It's hard to overstate how successful tirzepatide, the active ingredient in Zepbound and Mounjaro, has been so far. Mounjaro first earned approval to treat diabetes in 2022, but off-label prescriptions for folks trying to lose weight drove sales up to $5.2 billion last year.
Zepbound contains the same active ingredient as Mounjaro and earned approval from the Food and Drug Administration (FDA) last November. Despite just a few weeks on the market, Zepbound sales reached $175 million last year.
Eli Lilly's weight management drug is becoming entrenched in the market, but there's probably room for Viking's candidate. Analysts at Goldman Sachs think the market for weight management treatments could reach $100 billion by 2030.
Besides what could be a best-in-class weight management treatment, Viking is developing a candidate -- VK2809 -- for millions of patients with the liver disease metabolic dysfunction-associated steatohepatitis (MASH) that is probably headed for late-stage testing. Last May, we saw encouraging 12-week results from a phase 2b study with VK2809. If the 52-week data that the company expects to report later this year continues to show significant improvements, the stock could soar even further than it already has.
Image source: Getty Images.
Know the risks
Viking's big run-up on Feb. 27 pushed its market cap up past $9 billion. On the one hand, this seems low for a company with a candidate that could outperform Eli Lilly's Zepbound and another promising candidate for MASH.
Biotech stocks generally trade at mid-single-digit multiples of sales, so there's still room for this one to climb if its candidates continue to impress. That said, this stock is probably too risky for most investors at its recently elevated valuation.
The phase 2 data that drove Viking's stock higher came from a trial with less than 200 patients. It isn't going to reach commercial stages without a much larger study that takes years to complete. Eli Lilly's tirzepatide has been on the market since 2022 and will be entrenched by the time VK2735 has a chance to compete.
This stock is still a buy for folks with a high risk tolerance. For the rest of us, though, it's probably best to watch its story play out from a safe distance.
