Is Viking Therapeutics Stock a Buy?

One of the current stars of the biotech world is Viking Therapeutics (NASDAQ: VKTX), and for good reason. The clinical-stage company is advancing to the later stages of developing a drug that, if approved, would compete in the white-hot market for weight loss medications.

While that's not the only product in the company's pipeline, it's the one that many investors have pinned their hopes on. Typically, for a biotech that's become popular, Viking's share price has hit a few peaks recently. Let's see if we can gauge if it's in for new ones.

Developing for the hottest segment on the market

That product is VK2735, an obesity treatment that has tested very well so far in the lab. In a phase 2 trial of an injectable form of the drug, it demonstrated body weight reduction from baseline after 13 weeks of use. It also demonstrated encouraging safety and tolerability.

With this tailwind, Viking's next step is to put the drug through its paces in a phase 3 trial, which it hopes to begin after holding an end-of-phase 2 meeting with the Food and Drug Administration (FDA). That meeting should occur by the end of the year.

Americans just can't get enough of GLP-1 weight-loss drugs these days, not least because there are only a handful of them approved for that indication. The leader is Wegovy from Danish developer Novo Nordisk, a higher-dose version of the company's diabetes treatment Ozempic. Earlier this year, a new kid in town arrived in the form of U.S. pharmaceutical titan Eli Lilly, whose Zepbound is essentially its own diabetes drug Mounjaro, approved for pound-shedding.

Wegovy earned FDA approval for obesity in 2021, so it's a first mover and still the brand most associated with pharmaceutical weight loss treatment. Heavy and persistent demand for the drug pushed its sales up by 37% year over year in its maker's most recently reported quarter, so that advantage is still helping produce growth. Eli Lilly is going to be a tough competitor with Zepbound, though, as it has far greater resources, not to mention significant marketing muscle, to help make the Zepbound name famous.

But a smart company like Viking isn't going to go through the grueling process of developing a drug if there's no room in the market. Last year, sales of obesity drugs worldwide totaled roughly $24 billion, according to data compiled by healthcare research and services company Iqvia Holdings and quoted by Reuters. Back in those long-ago days, the most optimistic analysts pegged the segment as growing to $100 billion by the start of the 2030s. Mere months later, forecasts of $150 billion were creeping into the headlines.

More where that came from

This is why all eyes in the biotech sphere will be on Viking's upcoming sit-down with the FDA and, especially, the results of that phase 3 trial of VK2735.

Another potentially explosive development is the company's progress with an oral form of the medication, which would be far more appealing to the average patient than the injectable version. Like its brother, oral VK2735 did well in a phase 1 study; Viking aims to advance it to phase 2 testing by the time the new year rolls around. It's got a further distance to travel through the pipeline, but if Viking can ultimately commercialize it, the drug's format could vault it ahead of injectables Wegovy and Zepbound.

With all the hype and excitement surrounding VK2735, it's easy to lose sight of the fact that Viking has other development programs, too. Its VK2809 is aimed at treating non-alcoholic steatohepatitis (a liver disease), and met both its primary and secondary endpoints in a phase 2b trial. VK0214 targets a rare neurodegenerative disease called X-linked adrenoleukodystrophy (X-ALD). That program is at an early stage, having recently completed enrollment for a phase 1 study.

I like that Viking is not a one-trick pony, and has not one but two other treatments in development, the more advanced of which has performed admirably in its trials so far. Still, VK2735 has clear blockbuster potential, especially if the company can effectively develop and market the oral format effectively.

Clinical-stage biotechs are always something of a boom-or-bust play; I think, more than many, this one is leaning heavily toward the former. I'd be a buyer of this stock.

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