The late investing legend Charlie Munger talked about a "fat-pitch strategy," a baseball analogy about waiting for a big, no-brainer opportunity you can take advantage of. When you get that fat pitch, it's a chance to get a home run. In investing, it means potentially securing a massive return.
And that's what comes to mind when I think about the recent sell-off in Viking Therapeutics (VKTX 4.22%). Investors unloaded the stock after some disappointing clinical trial data. It looked like an incredible overreaction in the markets: The stock plummeted more than 40% in a single day. With a sell-off like that, you might assume that the company was on the verge of bankruptcy or experiencing a massive scandal that could jeopardize its future.
None of that happened. So if you're a long-term investor who's willing to take on some risk, Viking Therapeutics is a pharma stock you should consider buying right now. I predict that within the next 12 months, it'll double in value.
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Viking's sell-off last month wasn't warranted
On Aug. 19, shares of Viking Therapeutics went over a cliff, crashing a whopping 42% in a single day. The reason behind the sell-off: Data from a recent trial involving its GLP-1 obesity pill, VK2735, raised concerns about safety. The pill helped people lose around 12% of their body weight after three months, which is in line with how Eli Lilly's oral treatment did (though over 72 weeks).
Investors and analysts were concerned about VK2735's discontinuation rate. Over a period of 13 weeks, 28% of people stopped using the drug for any reason. Eli Lilly's oral pill had a discontinuation rate of around 24%, but it was over a much longer period. Thus, the conclusion was that VK2735 must have more concerning side effects.
But consider this: In Viking's trial, the discontinuation rate for people taking the placebo was 18%. While there have been gastrointestinal side effects associated with the drug, Viking says the vast majority (98%) of adverse events were mild or moderate, and that the drug was "safe and well-tolerated." Pfizer abandoned its daily pill earlier this year after there was a serious liver injury to a trial participant. That would be cause for alarm, but a high discontinuation rate, which can be attributed to any reason at all, is hardly justification for such a steep sell-off.
Why Viking's stock can double from here
Even if you aren't excited about Viking's oral version of VK2735, don't forget that the company has an injectable version (taken weekly) that's further along, and that could obtain approval in the next few years; it's in phase 3 trials. The healthcare company is also going to do another study on whether the drug can be taken on a monthly basis.
If there are early indications that VK2735 is doing well, Viking's stock could be off to the races again. And for it to double in value to get to around $50 a share, the stock would simply need to get back to where it was in December 2024. I think that will happen within the next 12 months.
In the longer term, there could be much more upside for Viking: If VK2735 obtains approval, that would not only give it a tremendous blockbuster drug to build its business around, but it could also lead to an acquisition.
Viking's stock still has risk, but the potential upside could be well worth it
After such a steep sell-off, Viking's stock is cheap enough that I think the upside vastly outweighs the risk. The company still hasn't made it across the finish line with VK2735 (the injectable version), but the drug did well in a previous phase 2 trial where it helped people lose around 15% of their body weight after 13 weeks. With pharma stocks in such early growth stages, there will inevitably be some risk, but in Viking's case, it may be worth it.
When there's such a significant overreaction in the markets, it can be a tremendous buying opportunity. And Viking is shaping up to be a possible steal of a deal right now.
