The weight loss drug market is growing in leaps and bounds -- and today the biggest winners are Eli Lilly and Novo Nordisk. These big pharma companies are bringing in billions thanks to their drugs that are helping those suffering from obesity shed pounds fast. But soon a new kid may be on the block. I'm talking about Viking Therapeutics (VKTX 7.92%), a biotech company that just released positive data from a phase 2 trial of its weight loss candidate.
Viking's shares soared a mind-boggling 120% in one trading session on the news, surging past even analysts' highest 12-month share price forecasts. This is as investors bet on this company eventually entering the market with a highly efficacious product -- or attracting a buyer. But after such a rapid gain, is it now too late to get in on this stock? Let's find out.
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Two obesity candidates in development
First a little background on Viking. The biotech company specializes in developing therapeutics for metabolic and endocrine disorders. It doesn't yet have products on the market, but it's studying four candidates in trials spanning phase 1 through phase 2 -- two for obesity, one for nonalcoholic steatohepatitis (NASH), and one for X-linked adrenoleukodystrophy (X-ALD). NASH is a liver disease, while X-ALD is a rare genetic disorder affecting the nervous system.
Now, let's move on to what's sparked investors' excitement. Just this week, Viking announced promising data from its phase 2 study of obesity candidate VK2735. Like Lilly's weight loss drug Zepbound and diabetes drug Mounjaro (also prescribed for weight loss), this candidate acts on the hormones glucagon-like peptide-1 (GLP-1) and glucose-dependent insulinotropic polypeptide (GIP). Novo Nordisk's drugs only stimulate GLP-1.
In the trial, VK2735 met primary and secondary endpoints, with patients achieving mean weight loss of as much as 13.1% after 13 weeks of treatment. Weight loss progressed throughout the period without patients reaching a plateau. And up to 88% of patients reached more than 10% weight loss compared with only 4% in the placebo group. Safety results also were positive, with most adverse events falling into the category of mild to moderate.
Lilly's Zepbound weight-loss results
The latest follow-up data from patients involved in Lilly's pivotal trial of the recently approved Zepbound show a mean weight loss of 26% over a period of 88 weeks. It's difficult to compare the results of VK2735 to Lilly's trials, however, because every trial is designed differently. And it's also hard to accurately compare the results of a phase 2 trial to a drug's performance in the real world. But it's fair to say that Viking's candidate, so far, is showing it could potentially carve out share in the weight loss market.
And here's why companies and investors are so enthusiastic about this particular space. Already, we've seen patient demand exceeding the supply even big pharma companies like Lilly and Novo Nordisk can provide. Still, without even meeting this demand, these companies already are generating blockbuster revenue from their weight loss drugs. Finally, analysts are predicting incredible growth for this market. The global weight loss drug market may expand by more than 16 times to reach $100 billion by 2030, according to Goldman Sachs Research. So, weight loss drugs clearly could drive a company's earnings growth -- and lead to share performance.
Is Viking a buy?
So, does all of this make Viking a buy in spite of its enormous one-day gain? Viking's candidate looks promising. It could carve out share in the market, or the company might even attract a buyer. But after this overnight run-up in the price, I would hesitate to buy the stock right now. It's important to remember that Viking still has to usher the candidate through pivotal trials -- so, risk hasn't been eliminated, and revenue isn't right around the corner.
It's also key to keep in mind that Lilly and Novo Nordisk have an enormous commercial infrastructure, so it may be difficult for a smaller player to win a significant share of the market -- and it may even be hard for a small player to serve the enormous existing and growing demand for weight loss drugs.
Of course, a buyout by a bigger competitor or would-be competitor could score a win for investors. But after such an increase in the stock price, these potential buyers also may hesitate to make a move.
All of this means that the good news probably is priced into the stock at this point -- and I'm interested in seeing if the gains last before jumping in. If they do, and if Viking delivers additional progress on this candidate and even others, then it may be the moment to consider this high-flying stock once again.
