Down 34%, Should You Buy the Dip on Viking Therapeutics?

Key Points

• Viking Therapeutics is working on an injectable weight loss drug candidate and one in pill format.

• The biotech might eventually compete against pharma giants Eli Lilly and Novo Nordisk.

• 10 stocks we like better than Viking Therapeutics ›

Viking Therapeutics (NASDAQ: VKTX) has intrigued investors over the past year and a half because it's involved in a potential David and Goliath story. Today, pharma giants Eli Lilly and Novo Nordisk dominate the weight loss drug market, and other big pharmas such as Pfizer are working to get in on this valuable space. Facing these market powerhouses, Viking, a biotech worth about $3 billion, has set its sights on becoming a player of importance.

Early last year, Viking announced results from a phase 2 trial of its injectable weight loss drug candidate and saw its stock surge more than 120% in one trading session. Results were strong, and investors even speculated that a pharma powerhouse, such as Pfizer. may want to acquire or partner with this young company. So far that hasn't happened, but Viking has continued to advance its candidate in injectable and oral formats.

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Though Viking's weight loss program has progressed, the stock price hasn't maintained its positive momentum. In fact, the shares have dropped 34% since the company's latest data report -- in August -- disappointed investors. After that move, is Viking Therapeutics a buy on the dip?

Image source: Getty Images.

The billion-dollar weight loss market

Before answering that question, let's look at the general weight loss drug market and consider Viking's position. As mentioned, Lilly and Novo Nordisk are leaders, with Lilly selling Mounjaro and Zepbound and Novo Nordisk selling Ozempic and Wegovy. Most of us know a friend or family member who has tried one of these products, and many celebrities such tennis superstar Serena Williams and Tesla chief Elon Musk have touted their benefits.

This class of weight loss drugs -- GLP-1 and dual GIP/GLP-1 receptor agonists -- has become so popular Lilly's and Novo Nordisk's have spent some time on the U.S. Food and Drug Administration's drug shortage list. And the market is set to continue growing, with Goldman Sachs Research forecasting that today's $28 billion market will reach $95 billion by 2030.

Considering the strength of demand and market forecast, it's fair to say there's room for additional players. And this is where Viking comes in. The biotech is developing a dual GIP/GLP-1 receptor agonist and is testing the candidate in oral form in a phase 2 trial and in injectable form in a phase 3 trial.

Difficult comparisons

In the latest data concerning the oral version of VK2735, the candidate resulted in 12.2% average weight loss at three months, and weight loss didn't plateau -- this means patients might continue shedding pounds. It's difficult to directly compare Viking to commercialized drugs or to clinical trials of potential rivals -- the treatment regimen or the trial designs may be different, so comparisons aren't apples to apples.

But some investors focused on the idea that the 12.2% average weight loss was at the highest dose, while current injectable formats have demonstrated greater weight loss at lower doses. For example, in a phase 3 trial, tirzepatide, commercialized as Mounjaro and Zepbound, produced an average of 15% weight loss at 5mg doses. It's important to keep in mind, though, that those results were after 72 weeks. Another point that worried investors was the 28% discontinuation rate in the Viking trial -- if patients are troubled by side effects, they might stop taking the drug, and this clearly could get in the way of sales over time.

Should you worry about the latest trial data?

So let's progressively move back to our question about whether Viking is a buy. The first thing to ask ourselves is whether we really should be concerned about the latest trial data, and my answer to that is "no." It's important to remember that Viking was testing a high dose and this over a rather short period of time. The company could adjust these parameters and improve the overall efficacy/safety profile. Viking even said in the data report that the pace of weight loss in the trial suggests lower doses and longer dosing periods may produce compelling results.

All of this means Viking's weight loss candidate remains promising -- and one that could potentially lead to blockbuster revenue down the road. Should you buy the stock? Biotech companies that, like Viking, don't yet have products on the market are somewhat risky -- they haven't yet proven their ability to commercialize a product and generate revenue. So if you're a cautious investor, Viking may not be right for you. But if you don't mind some risk in exchange for high growth potential, now, on the dip, is a great time to get in on this potential weight loss winner.

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Adria Cimino has positions in Tesla. The Motley Fool has positions in and recommends Goldman Sachs Group, Pfizer, and Tesla. The Motley Fool recommends Novo Nordisk and Viking Therapeutics. The Motley Fool has a disclosure policy.