When it comes to rising stars in biotech, Viking Therapeutics (VKTX +0.45%) should probably be one of the first businesses to come to mind today. The company doesn't yet have any sales revenue, but its pipeline of metabolic disease drugs has more than one highly promising project in the works, and investors likely won't need to wait years and years for those projects to (potentially) be commercialized.
But is there already too much attention on this stock to get any more upside? Let's take a look at the case for buying, selling, or merely holding on so that you'll know how to play your position for the best outcome.
NASDAQ: VKTX
Key Data Points
Why it's worth buying
Viking Therapeutics has its eyes on what is currently one of the most supercharged pharmaceutical markets: weight loss treatments.
Many millions of people feel, correctly or not, that they'd prefer to shed a few pounds without doing the aggressive dieting or routine exercise that clinicians tend to recommend as first-line solutions. Separately, many people experience metabolic issues that make it difficult or impossible to lose weight using the go-to methods.
According to the Centers for Disease Control and Prevention (CDC), approximately 42% of adults in the U.S. meet the clinical definition of obesity. And in late February, Viking's phase 2 clinical trial tests of its candidate VK2735 reported some data that could give both of those massive groups of people some additional hope that their struggle might be made easier.
Viking's study found that patients who got injections of the highest tested dose of VK2735 over the course of 13 weeks ended up losing an average of 14.6 kilograms, or 14.7% of their body weight. Those on the placebo only lost an average of 1.8 kilograms, and they quit the study due to side effects at roughly the same rate as those on the therapy. The bottom line is that the company is developing what is shaping up to look like an absolutely incredible pharmaceutical asset that has a real shot at being the best drug in its class.
Aside from its obesity programs, the biotech is also conducting a phase 2b clinical trial to treat metabolic-associated steatohepatitis (MASH, formerly known as NASH). If it succeeds, it'll have access to a market that could be worth more than $24 billion by 2028, according to the research group Insight Partners. And having another blockbuster drug candidate in the pipeline is a decent reason to think about buying this stock, given its other promising programs.
Why it could be worth selling
As bullish as things look for Viking Therapeutics right now, there is still a solid argument for selling the stock.
For instance, if you were a shareholder well before its absurd run-up in late February, it might make sense to consider paring your position to take some money off the table. That way, if there's a major mishap in the future that leads to a steep drop in the stock price, you'll at least have more in hand than you did before starting your position.
It could also be worth quitting your position if the company's phase 3 clinical trial data somehow turns out to be abysmal, unimpressive, or otherwise noncompetitive in light of the other weight loss therapies on the market. There isn't any indication of such an outcome being likely, but it pays to have a game plan anyway.
Hold em' if you've got em'
The smartest thing for shareholders to do right now is sit tight and look for opportunities to add a few shares if there's a pullback. As exciting as Viking's latest results are, it is very possible that the phase 3 trial data could prove to be even better.
The recently published trial data only covered 13 weeks of treatment. There wasn't evidence to suggest that longer durations of treatment would result in a tapering of the candidate's benefits. Competitors like Novo Nordisk and Eli Lilly both tested their weight loss programs for significantly longer periods, and in some trials they were following patients for longer than 52 weeks. Put two and two together: The biotech has an opportunity to massively one-up the incumbents on the grounds of efficacy.
At the same time, Viking won't need to raise money by issuing new stock for quite a while since concluding its latest public offering on March 4 in which it raised a total of $632.5 million. So if you're currently a shareholder, your risk burden is far lower than it would otherwise normally be with another biotech stock of roughly Viking's maturity. Buying shares now would thus increase your risk exposure as it is possible that its shares are overvalued or otherwise temporarily hyped up thanks to an overreaction by the market.
In conclusion, you probably shouldn't sell this one, and you should be ready to buy more when the situation has cooled down, if it does.
