What happened
Viking Therapeutics' (VKTX 7.92%) shares were down by 9.9% on heavy volume as of 11:14 a.m. ET on Monday. This sizable drop was due to Pfizer's (NYSE: PFE) announcement that it will advance its oral glucagon-like peptide-1 receptor agonist danuglipron into late-stage testing later this year. As a result, Viking's midstage weight-loss candidate, VK2735, could face stiff competition from yet another industry giant.
So what
Viking's shares have been soaring this year, in large part because of the progress of VK2735 as a novel treatment for weight loss. However, the biotech's midstage obesity candidate is still several years behind industry leaders such as Eli Lilly, Novo Nordisk, Amgen, and Pfizer.
To compete with these first movers, VK2735 will need to have a best-in-class profile. That's achievable given its impressive safety and efficacy profiles so far. However, because of the highly competitive nature of the market, Viking can't afford any major clinical setbacks with VK2735. The drug is crucial to Viking's value proposition, with some analysts estimating its peak sales at more than $6 billion per year.
Now what
Is Viking's stock a buy on this pullback? It depends on your comfort with risk. Viking is also developing a midstage nonalcoholic steatohepatitis (NASH) drug, VK2809, that could hit blockbuster status before the end of the decade. So there's an outside chance the company might be harboring two all-star drugs in its pipeline. As a result, the small-cap biotech's shares could be woefully undervalued at current levels. That said, Viking's shares are risky because of the high level of competition in both NASH and obesity.
