Key Points
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Viking’s ongoing phase 3 trials are the key to unlocking value for shareholders.
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Its lead drug, VK2735, has demonstrated impressive results in a phase 2 trial.
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A stock market crash is likely to take nearly all stocks down with it, but the key question to ask when looking to take advantage of a market-led dip is whether the reasons for the crash have impaired the company’s earnings prospects. In this context, I think healthcare stocks are a good place to start, as this sector’s end demand is relatively insulated from the broader economy.
Why Viking Therapeutics is a great stock to consider
For investors averse to “picking winners” and who prefer to diversify stock-specific risk, it might make more sense to buy a biotechnology exchange-traded fund (ETF) such as the VanEck Biotech ETF (NASDAQ: BBH). However, if you like picking stocks, something like weight loss drug Viking Therapeutics (NASDAQ: VKTX) is a good place to look.
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It’s not just that the end market demand for its lead drug candidate, VK2735, is driven by individuals’ desire to lose weight, or that all Viking has to do is secure a relatively small share of a massive end market that peers like Eli Lilly and Novo Nordisk are establishing. Those factors obviously count, but the key risk (upside and downside) lies in the data from its phase 3 clinical trials for VK2735 in subcutaneous (injectable) and oral form.
Simply put, if Viking’s phase 3 trials are successful and the company establishes a foothold in a highly lucrative market, it’s relatively less important how the overall market performs.
Market exposure
While it’s extremely difficult to predict the exact causes of market crashes, history suggests that they are caused by periods of over-exuberance in investing in certain asset classes or sectors, with examples including the dot-com boom and bust, and subprime mortgages. If that pattern repeats with AI, there will be a negative reassessment of earnings prospects for AI-related companies. That’s a lot less likely for Viking’s end markets.
Image source: Getty Images.
Why Viking stands well placed
The case for the stock rests on two factors. First, Viking has demonstrated impressive efficacy and a rapid rate of weight loss in its subcutaneous phase 2 trial compared to its closest rival, Eli Lilly’s tirzepatide (Mounjaro for diabetes and Zepbound for obesity). If repeated in phase 3, investors have cause for optimism that Viking can establish VK2735 commercially.
Second, VK2735 is being developed as a potential dual-formulation treatment, in which steep initial weight loss can be achieved via subcutaneous dosing before switching to a less invasive, more comfortable, and easier-to-administer oral dose of the same drug.
These two factors should give VK2735 commercial appeal as it hopefully competes with its far larger rivals.
A stock to buy?
Viking Therapeutics carries risk, but it’s a different kind of risk from that facing the broader market, where most companies’ earnings prospects are highly geared to the economy. This makes the stock highly attractive in a multi-stock portfolio on the more speculative end.
Should you buy stock in Viking Therapeutics right now?
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Lee Samaha 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.
