Weight-loss medicines are rising in popularity. According to some estimates, this market will be worth $44 billion in risk-adjusted sales by 2030, while it was only valued at $2.5 billion last year. Naturally, several biotech giants will dominate this industry, the two most important (by some margin) being Novo Nordisk and Eli Lilly.
While both stocks are well worth investing in, one smaller company in this space might have an even more substantial upside potential: Viking Therapeutics (VKTX 7.92%). While not a household name, this stock could deliver market-beating returns through the end of the decade. Let's find out why.
Viking Therapeutics' programs
Viking Therapeutics is a clinical-stage biotech, with only four programs in its pipeline. The biotech's leading therapy is called VK2809, a potential treatment for non-alcoholic steatohepatitis (NASH). There aren't any approved treatments for it yet although that should change within the next year or so. The NASH market is also projected to skyrocket in the coming years.
Obesity is considered to be one of the leading causes of NASH. Viking is developing another candidate, VK2735, as an obesity treatment. The company recently started a phase 2 clinical trial along those lines.
VK2735 looks especially promising for one reason: It's a (potential) dual GLP-1 and GIP receptor agonist. Here's what that means. GLP-1 is a hormone that helps regulate insulin release, among other functions. GLP-1 agonists work by mimicking this hormone to help regulate blood sugar levels and, in some cases, aid with weight loss. Some highly successful medicines, such as Eli Lilly's Trulicity and Novo Nordisk's Ozempic, are examples of GLP-1 agonists.
Similarly, GIP agonists mimic their namesake hormone, which plays a role in insulin secretion. So far, the only dual GLP-1/GIP agonist to earn approval from the U.S. Food and Drug Administration (FDA) is Eli Lilly's Trulicity -- a therapy that only got the green light last year, will already generate well over $1 billion in sales this year, and is projected to become one of the best-selling medicines in the history of the industry.
Viking Therapeutics' own GLP-1/GIP agonist, VK2735, isn't close to earning approval yet, but it delivered solid results in a phase 1 clinical trial. In the study, patients who were given VK2735 once a week for 28 days experienced fat loss compared to their baseline, and to those who were administered a placebo.
It's by no means a sure bet
Clinical-stage biotechs can deliver market-beating returns pretty easily -- at least in principle -- especially when they're relatively small. Viking's market capitalization as of this writing is $957 million. Here's a scenario that would allow its share price to skyrocket in the next few years. The company needs to record steady clinical and regulatory progress, including acing its ongoing phase 2 trials in obesity and NASH; then, its programs should perform well in phase 3 studies, eventually earning approval.
If that happens, Viking could indeed triple in the next six years -- and then some. However, there's no guarantee that everything will go this well. Viking remains subject to the same risks as all biotech companies, including potential clinical and regulatory setbacks, funding problems, and the need to resort to dilutive means of financing. Naturally, Viking generates no revenue and is consistently unprofitable, like most clinical-stage biotechs.
Yes, the stock could register mouthwatering returns, but although it's delivered encouraging results so far, it could also turn out to be a dud. In my view, the stock is still a bit too risky for most investors, but it's worth keeping a close eye on. If things evolve the way Viking Therapeutics hopes, the biotech could become a slam dunk of an investment in a couple of years.
