Viking Therapeutics (VKTX -8.18%) has emerged as a beacon of hope in an otherwise lackluster year for healthcare stocks. The buzz around its mid-stage weight loss candidate, VK2735, has propelled the biotech's stock to a staggering 714% surge since the completion of the drug's Phase 1 trial on March 28, 2023.
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What's Driving Investor Interest?
Two key factors have fueled investor enthusiasm:
- Sales Estimates: Wall Street analysts have unveiled jaw-dropping sales projections for VK2735. But more on that shortly.
- Buyout Rumors: With each clinical update over the past 13 months, buyout speculations have gained momentum.
The VK2735 Opportunity
Viking currently boasts a market valuation of $8.1 billion. For an unprofitable biotech company without approved products, this might seem extravagant. However, VK2735 represents a potential mega-blockbuster in the pharmaceutical industry--a rare gem.
Why?
Goldman Sachs analysts foresee the weight loss drug market ballooning to a staggering $100 billion by 2030. Taking a leap further, Leerink Partners predicts it could reach $158 billion by 2032.
Viking could be sitting on a gold mine. William Blair analyst Andy Hsieh projects VK2735 peak sales of $14.4 billion in the U.S. and an additional $7.2 billion in Europe, thanks to the enormous commercial opportunity inherent in the weight loss care market. These astronomical sales figures are remarkable for a company with an $8.1 billion market cap.
The Valuation Gap
But here's the twist: Viking's valuation gap might be deceptive. Eli Lilly (LLY -1.50%) and Novo Nordisk (NVO -0.19%) hold a crucial first-mover advantage with their drugs Zepbound and Wegovy, respectively. Most analysts believe these two drugs will continue dominating the market for years to come.
Moreover, both companies are also actively developing next-generation weight loss drugs to ward off competitors. Lilly is testing a triple-hormone receptor agonist called retatrutide, while Novo Nordisk is working on a pill called amycretin that stimulates gut hormones regulating appetite and blood sugar levels. These next-gen candidates pose another hurdle for would-be competitors like Viking.
Is this biotech stock a table-pounding bargain?
Unfortunately, the market's skepticism is probably warranted. Historically, overcoming a first-mover advantage in the pharmaceutical market has been exceptionally challenging--unless major clinical setbacks occur.
In a stand-alone scenario, VK2735 may struggle against entrenched competitors like those from Eli Lilly and Novo Nordisk. While efficacy matters, marketing muscle reigns supreme in pharmaceutical sales.
VK2735's true value lies thus in the hands of a well-funded big pharma player with the marketing might to compete effectively. This fact profoundly alters the calculus for prospective investors (keep reading to find out how).
What's the bottom line?
Investors considering Viking Therapeutics' stock at its current levels should carefully evaluate the competitive landscape and the appeal of VK2735 as a potential deal catalyst. After all, a solo launch for VK2735 might not be advantageous for the company's shareholders.
However, there is a bright side: there are likely interested parties. For example, Pfizer could be looking for an attractive acquisition to address its gap in weight loss drugs. Additionally, several other major drug manufacturers have publicly expressed interest in potential acquisitions in this therapeutic area.
So, while a solo sales launch might not be ideal, the possibility of acquisition interest could provide hope for Viking Therapeutics and its shareholders. That being said, Viking's shares don't necessarily leap off the page as an "incredible bargain" due to its evolving risk profile.
