Could 2024 be a breakout year for Viking Therapeutics (NASDAQ: VKTX) ? The mid-cap biotech has generated more positive headlines than most of its peers. Excitement is through the roof. Due to crucial clinical progress, Viking Therapeutics' shares have tripled this year.
Biotech investors have noticed, but many remain on the sidelines wondering whether Viking is the right choice for them -- or whether the stock is a one-hit (or one-year) wonder. Let's discuss the drugmaker's prospects and determine whether it is worth investing in this high-flying company.
What Viking Therapeutics (might) offer
Relatively small clinical-stage biotechs have incredible upside potential. Imagine if you had invested in Vertex Pharmaceuticals 30 years ago . Is it unfair to compare Viking to such an established and prominent player in the biotech industry? Maybe, but it's worth noting that it isn't just any other mid-cap biotech.
The drugmaker's recent data readouts make its pipeline candidates incredibly promising. The most important is VK2735, a dual GLP-1/GIP medicine (both classes help patients fight obesity).
The only such medicine approved by the U.S. Food and Drug Administration is Eli Lilly 's tirzepatide, which has been flying off the shelves since it received the green light.
Being in the same class of medicines might not mean much, but VK2735's phase 2 results in obesity were strong. Patients taking the medicine lost meaningful weight at every dose level, with the higher doses leading to more significant decreases in body weight.
Viking is one of the more promising among the many, many drugmakers trying to join the anti-obesity market and challenge Eli Lilly and Novo Nordisk (NYSE: NVO) .
The biotech does have another exciting asset. It's called VK2809, a potential therapy for non-alcoholic steatohepatitis (NASH), a liver ailment, yet another highly promising market.
How high will Viking's revenue get with these two assets leading the way? It's hard to say, but let's focus on VK2735. William Blair analyst Andy Hsieh estimated that the medicine could generate about $14.4 billion in revenue in the U.S. and $7.2 billion in Europe. Most medicines never get anywhere near $21 billion in sales.
So if things go according to plan, Viking will prove to be an innovative biotech that generates strong sales and superior stock market returns.
The other side of the coin
If that was the whole story, every biotech investor should (and would) rush to add Viking Therapeutics to their portfolios. But it remains a clinical-stage company that generates no revenue and is consistently unprofitable.
And success in phase 2 studies is no guarantee that pivotal clinical trials will go as planned. If the biotech doesn't meet the market's lofty expectations, in all likelihood, the stock will drop like a rock.
That's especially true if anything goes wrong with VK2735, the company's leading candidate. Even if the phase 3 trials are successful, perhaps the results won't be as emphatic as those from phase 2, thereby decreasing the medicine's sales potential. That's not to mention potential unforeseen regulatory roadblocks.
All these are risks typical of drugmakers at the stage at which Viking currently finds itself. So, investors must keep in mind that the biotech's recent run of form arguably heightens these risks.
Some of VK2735's success could already be baked into the company's stock price, which makes the possibility of anything going wrong even riskier. So, whether Viking Therapeutics is for you strongly depends on your risk tolerance.
Those who are above average in that department and willing to hold on to the stock for a while, even during times of heightened volatility, might want to strongly consider buying the company's shares. However, investors without an appetite for risk should look at other exciting biotech stocks .
Prosper Junior Bakiny has positions in Vertex Pharmaceuticals. The Motley Fool has positions in and recommends Vertex Pharmaceuticals. The Motley Fool recommends Novo Nordisk. The Motley Fool has a disclosure policy .
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