With Viking Therapeutics (VKTX 7.92%) stock exploding skyward by 528% over the last 12 months, it's easy to wonder if the opportunity to buy its stock is too good to be true -- and a bit too late.
But in this case, there's actually a well-grounded argument for why shares of this young biotech could go quite a bit higher for those who are willing to retain them for the next few years or beyond. Here's what you need to know.
Why this company is very appealing
The investing thesis for Viking Therapeutics rests on its prospects of developing a medicine that can effectively help people with obesity to lose weight.
Per the results of its phase 2 clinical trial, released on Feb. 27, Viking's obesity treatment candidate, VK2735, appears to be highly effective and reasonably safe to use. Though the details will be fleshed out a bit more in larger cohorts in the upcoming phase 3 trials, and the prospect of regulatory approval for sale is still distant, the program currently appears to have a strong shot at both securing regulatory approval and securing a large market share in the increasingly competitive obesity therapies market.
And given that the market's reigning champions, Eli Lilly and Novo Nordisk, are so overwhelmed by demand for their weight-loss medicines that they can hardly expand their manufacturing capacity quickly enough, there is a good chance that Viking will be able to hold some ground if it gets its therapy approved in the future.
Still, it wouldn't be surprising at all if the biotech was instead acquired by one of those two players or another major biopharma company well before getting its therapy approved. Forging licensing deals or other late-stage collaborations are also both on the table. But don't take the possibility of doing some business development deals to mean that Viking is short on cash, because the opposite is true.
As of the fourth quarter of 2023, it had $362 million in cash and marketable investments. It also just closed a new stock offering on March 4 that was worth gross proceeds of $632 million. Its trailing-12-month total expenses were $101 million, and its debt load is negligible.
This company has more than enough money in its coffers to wrap up VK2735's clinical trials and commercialize it, even if it runs into more than one serious setback with regulators or clinical data along the way.
The pipeline isn't a one-trick pony, either. Its ongoing phase 2b clinical trial for treating metabolic dysfunction-associated steatohepatitis (MASH, formerly known as non-alcoholic steatohepatitis or NASH) -- a disease of the liver -- eventually could potentially enter an uncontested and large market, which would send the stock aloft too.
You'll pay the hype tax if you buy now
Despite its very promising clinical trial results, rock-solid balance sheet, and a decent pipeline, there is one major downside to buying this biotech stock right now.
With its shares bid up significantly thanks to the recent flurry of news, investors who start a position in Viking Therapeutics in the next few weeks and months will be paying a pretty penny for the privilege. It is distinctly possible that the stock's high valuation could have trouble keeping pace with reality, even if the biotech manages to commercialize its obesity candidate. Furthermore, there is an argument that claims the only place that a stock can go after such a wild run-up is straight down.
There is also a risk that its phase 3 clinical trial data won't look as favorable as its phase 2 data did. As of now, there is not any reason to think that might be the case, but it's always a possibility.
Finally, there is a risk that the company won't be able to secure a home in the market if it eventually gets a product approved. The presence of voracious and powerful competitors like Eli Lilly and Novo Nordisk is doubtless a threat, even in the context of the massive market for weight loss therapies.
Nonetheless, Viking looks like a very appealing investment right now, aside from the hype issue. Therefore, it's worth buying if you have the patience to hold it over the next few years, as well as the knowledge that there might be some pain along the way if the hype bleeds off sharply.
