Key Points
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The weight loss drug market is on track to reach nearly $100 billion by the end of the decade.
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Viking has a candidate, in two formulations, involved in phase 3 studies.
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Viking Therapeutics (NASDAQ: VKTX) has been a company to watch over the past few years. That’s because the biotech is involved in one of the healthcare market’s biggest growth areas: weight loss drugs. Viking hasn’t yet commercialized a product, but it’s nearing the finish line. The company’s lead candidate is involved in two phase 3 trials, and it recently launched trials for an additional candidate.
Viking aims to compete in a space dominated today by pharma giants Eli Lilly and Novo Nordisk. While I wouldn’t expect Viking to oust these players from leadership, the company still could score a major win in the space. This is because demand is high, leaving room for more than one or two companies to operate here.
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And today, investors are looking at a key opportunity. Viking is trading about 23% below its $35 secondary offering price. Let’s find out why this could be a gift for patient investors.
The weight loss drug opportunity
We’ll start by taking a look at the weight loss drug opportunity. The market may reach nearly $100 billion by the end of this decade, analysts predict, and that’s due to the tremendous demand for drugs in the GLP-1 class. These products act on hormonal pathways that control digestion, so they help manage blood sugar levels and appetite. Lilly and Novo have generated blockbuster revenue from their injectable GLP-1 drugs, and this year they launched oral products, further broadening the potential patient group.
Viking’s VK2735 is being developed in injectable and oral formats. Like Lilly’s injectable drugs, Mounjaro and Zepbound, it is a dual GLP-1/GIP receptor agonist, so it activates two hormonal pathways involved in digestion. VK2735, as an injectable, is involved in an ongoing phase 3 trial; the oral format recently began its phase 3 study. The company is also studying the candidate in a maintenance dosing trial, with the goal of eventually offering a variety of dosing options to patients.
If all goes smoothly for Viking, it could launch at least one weight loss drug within the next few years. This would be a major moment for the company, ushering in an era of revenue growth.
Meanwhile, Viking also recently started testing another candidate in phase 1, using a different approach. This is an amylin and calcitonin receptor agonist, mimicking the body’s hormone amylin and stimulating calcitonin receptors — both help regulate digestion. This candidate is much further from the finish line, but it’s encouraging to see that Viking is filling its pipeline to support potential growth down the road.
Viking’s secondary offering
The company last month completed a secondary offering, including common stock and convertible senior notes, and raised $575 million to support the phase 3 development of VK 2735. Viking priced the stock at $35, and today, shares are trading about 23% below that level. The stock fell after the operation, as investors frowned on the share dilution that accompanies such an offering. They also didn’t like the fact that the offering came at a 16% discount to the previous day’s closing price.
Today, however, I’m saying that Viking trading at the current level is a gift to investors. This is because the company is making significant progress in its weight loss pipeline and is nearing the regulatory review stage. If all goes well, Viking could be the next company to join Lilly and Novo in the high-demand weight loss drug space.
In the meantime, clinical trial updates could drive stock performance. Viking stock is known to react to such reports; when it announced phase 2 results for VK2735 a couple of years ago, the stock surged more than 100% in one trading session. That sort of extreme movement may not happen again, but it’s likely that positive news still will lead to an increase — and potential product approval down the road should result in further gains.
Viking’s level today, trading at less than $30, seems very reasonable for a biotech at this stage of the development road. All of this means that the stock, trading below its secondary offering level, is a fantastic buy for the patient investor.
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Adria Cimino has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Eli Lilly, Novo Nordisk, and Viking Therapeutics. The Motley Fool has a disclosure policy.
