Viking Therapeutics (VKTX 0.78%) has been one of the few bright spots in the healthcare sector this year. The biotech's shares have stormed higher by almost 300% year to date on the back of its midstage weight-loss candidate, VK2735.
The lowdown is that VK2735 could be a top three weight-loss medication in terms of sales, according to some analyst estimates. That's a potentially incredible opportunity for risk-tolerant investors.
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What's the opportunity?
The weight-loss drug market could reach a staggering $158 billion in sales by 2032, per Leerink Partners. For a non-COVID product, the pharmaceutical industry has never witnessed such a massive commercial opportunity.
Breaking this down further, VK2735 might be a $30 billion-a-year drug in the making, depending on how the competitive landscape shapes up, the drug's pivotal-stage data, and the trajectory of the out-of-control obesity epidemic.
After all, these next-generation weight loss drugs aren't only showing dramatic improvements in lipid profiles; they are exhibiting clear-cut cardiovascular and blood sugar control benefits as well.
Why should investors take notice? With only a 3x handle, Viking could warrant a $90 billion market capitalization. It currently garners a market cap of just $8.12 billion. That's over 10x in market capitalization for those of you keeping score.
However, Viking stock could blow past the 10x mark to achieve 20x to over 30x returns for investors from this point. Think that sounds like a pipedream? Consider this.
A realistic path to 30x gains
Novo Nordisk stock presently trades at over 16 times trailing sales, whereas Eli Lilly's shares are exchanging hands at over 19 times trailing sales.
Now, these are multinational pharma companies with broad pipelines outside of weight loss. But most of their premium valuation stems from their weight loss drugs Wegovy and Zepbound, respectively.
Extending this logic, Viking's stock, with only a 10x trailing sales valuation and a $30 billion-a-year product, would be worth $300 billion in market capitalization.
That's nearly double Pfizer's (PFE 1.63%) current market capitalization, which sounds absurd. Viking is a pre-revenue biotech with a short operating history, after all. Pfizer, on the other hand, has been in existence since 1849.
I know, these numbers sound outlandish, absurd even. However, math is indifferent to our preconceived notions of value.
A critical question and an overarching concern
So, prospective investors should ask themselves this question: Is this a blue-sky scenario?
I do not believe this is a blue-sky scenario in the least. If VK2735 can continue to post top levels of efficacy and safety, I suspect this mid-cap biotech stock may go on a historic run.
My bigger concern is management cashing out by selling the company before VK2735's pivotal data release a few years from now.
Developmental-stage companies like Viking are at a distinct disadvantage when marketing newly launched drugs; so selling the company wouldn't necessarily be an unwise decision by management.
A better outcome for stakeholders would be for Viking to partner with big pharma on a co-commercialization agreement. And yes, I'm looking at you, Pfizer.
It's no secret that Pfizer is on the hunt for a needle-moving obesity asset. Viking's brain trust may be willing to sell out early to lock in gains in case VK2735's story falls apart in the clinic.
Clinical setbacks happen constantly in biopharma, and it is one reason investors have kept their distance from this space since interest rates flipped.
But a partnering agreement, post Phase 3 data release, with a Pfizer, or similar type of deep-pocketed pharma, would undoubtedly be the best path toward 20x to 30x gains for Viking's early shareholders.
Final thoughts
The bottom line is Viking might be poised to enter the pantheon of truly great growth stocks this decade. Of course, risk abounds with clinical-stage assets, and black swans are never far away from biopharma companies.
An unforeseen patent challenge, safety signal, or managerial mishap could send this promising obesity-case asset into the dustbin of history. If you're willing to take that chance, this biotech stock could be your ticket to life-changing gains.
