Viking Therapeutics (VKTX -8.18%) has been flying on all cylinders since the beginning of the year. The company's shares are up 246% due to excellent clinical progress. It's not rare for smaller biotechs to see their stock prices skyrocket relatively quickly, but many eventually give up most, if not all, of their gains. Could Viking Therapeutics be different?
There's an argument to be made that the drugmaker could deliver market-crushing returns in the next decade. Let's see whether Viking Therapeutics can pull it off.
What it would take
Let's review what sent Viking Therapeutics' shares soaring earlier this year. The company reported positive results from a phase 2 clinical trial for VK2735, a potential anti-obesity medicine. VK2735 belongs to the same class of medications as Zepbound, the weight-loss drug marketed by Eli Lilly that's projected to lead the pack for years to come. Viking Therapeutics still has a lot of work to do before launching its Zepbound competitor on the market.
But if VK2735 passes phase 3 studies with flying colors, that should jolt the company's stock again. Analysts are excited about the medicine. Some believe it could generate peak sales of about $21.6 billion, including $14.4 billion in the U.S. and $7.2 billion abroad. Viking Therapeutics' market capitalization is currently just $7.2 billion.
Provided there's a seamless path to approval and blockbuster status for the company's crown jewel, it should maintain its recent momentum, especially since there's also an oral version of VK2735 in the works that looks promising.
Viking does have another exciting product in the pipeline called VK2809, a potential treatment for non-alcoholic steatohepatitis (NASH), a liver disease linked to obesity. The first drug for NASH was recently approved by the U.S. Food and Drug Administration (FDA), and there's plenty of room for more therapy options. Viking plans to release results from its ongoing phase 2 study for VK2809 during the second quarter. It will need solid results from this trial and subsequent ones to impress investors and keep the gains coming.
Both the weight-loss and NASH markets will grow incredibly rapidly in the coming years. Viking could have important medicines in both fields, and if it manages to become a leader in both, it should do wonders for its share price. It's not surprising that the market is excited about the biotech.
Hedge your bets
Viking Therapeutics could deliver tenfold gains in the next 10 years if its two leading programs progress more or less flawlessly. But how likely is that to happen? It's hard to say. Biotech companies, especially smaller ones, often encounter unexpected regulatory obstacles related to manufacturing or other issues. That wouldn't be the end of the world for Viking, but the company could also be subject to clinical setbacks.
There's no guarantee that VK2735 will prove effective in phase 3 studies, even after the solid results it delivered in phase 2. We'll know more about VK2809 relatively soon, but the same rules apply: Even if it's successful in its ongoing midstage trial, that isn't a guarantee that it will eventually make it to the market. And given its recent run, Viking Therapeutics' shares will almost certainly drop off a cliff if problems arise.
What should investors do? Though the 10x potential is certainly there, so is the risk of substantial losses. Investors with an above-average risk tolerance might consider the stock, though, as it could end up providing hefty gains down the road.
