Why Viking Therapeutics Stock Surged Nearly 20% Higher in April

One of the best catalysts for a stock's rise is the withdrawal of a rival. That was an important dynamic behind the double-digit-percentage rise of biotech Viking Therapeutics' (NASDAQ: VKTX) stock in April. Another was a looming late-stage clinical trial of a closely watched pipeline drug that's loaded with potential.

A potential rival drops out

For a relatively young, clinical-stage company, Viking has developed quite a high profile. That's because its leading drug candidate, VK2735, is its possible entry into the high-demand GLP-1 weight loss drug market. So far, that space is occupied by a mere two treatments that the Food and Drug Administration (FDA) has approved specifically for treating obesity: Novo Nordisk's Wegovy and Eli Lilly's Zepbound.

Image source: Getty Images.

For a time, American pharmaceutical sector mainstay Pfizer was vying to be on that short list. However, on April 14 it threw in the towel. The company announced formally that it had discontinued the development of its homegrown weight-loss medication danuglipron, following a liver injury to a patient during a clinical trial.

Had it followed through with danuglipron's development and eventually won approval to sell the drug, Pfizer surely would have been a near-instant top player in the obesity segment. The U.S. has a notoriously high obesity rate, a major reason the take-up of GLP-1 drugs was so intense right out of the gate in mid-2021, with the FDA's nod for Wegovy.

I should stress here that, unlike Wegovy and Zepbound, Viking's VK2735 is still in the investigational stage. Yet the drug did extremely well in phase 2 testing, and its performance raised hopes that it could be the great usurper in the market if it ultimately earns an FDA nod.

Who's afraid of a bottom-line miss?

Buttressing such hopes was Viking's first quarter earnings report, published slightly over a week after Pfizer's danuglipron retreat.

As a clinical-stage company, the biotech didn't have any revenue to report. Meanwhile, expenses zoomed higher on a year-over-year basis -- understandably, given the VK2735 push -- to deepen net loss considerably. This figure came in at $45 million, or $0.41 per share, against the year-ago shortfall of nearly $29 million. The consensus analyst estimate for net loss was only $0.33.

That didn't spook Viking investors, however, because in the earnings release the company stated that the hotly anticipated phase 3 trial for VK2735 would begin in the current quarter of this year. The enticing possibility that a clear candidate for eventual blockbuster drug status was about to undergo a late-stage trial obliterated concerns about the earnings miss.

As ever with biotechs, I have to caution here that bringing a new treatment to pharmacy shelves is a long, resource-intensive, and difficult process that's never guaranteed to succeed. That said, VK2735 is looking like one of the best drug candidates in all of the U.S. biotech space, and if it's popular it'll almost surely vault its maker higher on the market.

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Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Pfizer. The Motley Fool recommends Novo Nordisk and Viking Therapeutics. The Motley Fool has a disclosure policy.