With the launch of its two massively popular drugs for obesity and diabetes -- Ozempic and Wegovy -- Novo Nordisk seems to have started a biopharma gold rush. Now, companies across the world are racing to develop similar therapies to target these conditions, typically using the same scientific approach as Novo's molecule semaglutide, which is the basis for its rising new stars.
Investors today have a plethora of different plays to choose from if they want exposure to the upside from this rapidly growing market. Let's take a look at two of the smaller competitors in biopharma that could stand to benefit hugely if they can commercialize a therapy in this space over the next few years.
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1. Viking Therapeutics
Thanks to the hype surrounding anti-obesity therapies right now, shares of Viking Therapeutics (VKTX 7.92%) are up 564% in the past six months. And over the coming five years, the stock could easily keep growing.
As far as pre-revenue biotech stocks go, Viking is fairly typical. Its pipeline features several clinical stage programs, including one in phase 2b for non-alcoholic steatohepatitis and another for obesity that's due to start its phase 2 trial any time now. It also has an earlier-stage program seeking to treat metabolic disorders using the same modality as its obesity candidate.
Based on other medicines developed with the same approach, there is a high chance that the "metabolic disorders" it aims to treat will be type 2 diabetes. And since Viking's pair of candidates for obesity and metabolic disorders will have the benefit of Novo Nordisk entering the market first, they can learn from the pharma's experiences with safety, efficacy, marketing, and even with seeking approval from regulators, all of which are advantages.
In terms of Viking's finances, in 2022 it burned $48.3 million in cash. Now, after issuing new shares of its stock in the first quarter, it has $406 million of cash, equivalents, and short-term investments on hand, which means that it should have no problem continuing to spend at its current rate for some time if necessary.
Further, the company has no long-term debt, so it could easily borrow money if it needed to do so. In short, Viking almost certainly has the resources it needs to commercialize at least one of its programs within the next five years, even if it experiences a couple of problems with its clinical trials along the way.
Assuming it manages to advance one of its drugs to the market, it won't have a free lunch. Competitors are already making inroads, and more of their entries are on the way, not to mention other players aiming to enter for the first time. And given Viking's wild run-up and inflated valuation recently, experiencing a setback in the clinic could be devastating for its share price.
Still, if you can handle the idea of making a risky investment to gain exposure to possibly big growth, this stock might be a winner, especially if its therapy for obesity ends up being more effective or more tolerable for patients than the offerings by others.
2. Structure Therapeutics
Much like Viking Therapeutics, Structure Therapeutics (GPCR -0.10%) is a pre-revenue biotech that has a program for both diabetes and obesity in phase 2a clinical trials. Right now, the company is also debt-free and has $240.9 million in cash and short-term investments. Management expects that will be sufficient to take the company through 2025 given its 2022 total expenses of $52.5 million.
That leaves it significantly less well-capitalized than Viking, but it has the advantage of receiving less of the market's attention. Its shares are up by 26% in the last 12 months -- which is certainly not bad -- but it hasn't been discovered as a business that might be able to compete in the market for obesity and diabetes in the way that some of its peers have.
So there is a chance that it is somewhat less vulnerable than Viking to having its shares crater as a result of a clinical failure popping its overinflated valuation bubble.
Structure Therapeutics should also be less prone to having its share price damaged by contagion from bad results of other biotechs that are angling for the same markets. Plus, there's also a lower chance that the market hasn't fully priced in the future revenue that it might bring in if it can commercialize one of its medicines.
In terms of catalysts that shareholders could look forward to, Structure Therapeutics should report some data from its phase 2b study toward the end of 2023. If the results look favorable in comparison to competitors like Novo Nordisk, expect its stock to start climbing steadily, potentially for years. But remember, don't buy this biotech stock unless you're comfortable with the high risks that come with the territory.
