Is Viking Therapeutics a Buy on the Dip?

Viking Therapeutics (NASDAQ: VKTX) soared to center stage earlier this year as a potentially promising player in one of today's highest-growth healthcare markets: weight loss drugs. The biotech company presented solid data for a candidate that could eventually rival blockbuster weight loss drugs from big pharma companies Eli Lilly and Novo Nordisk. And in just one trading session, the shares skyrocketed, rising more than 100%.

Since then, Viking has reiterated this encouraging data from trials of the injectable candidate and reported favorable data from an earlier-stage oral form of the investigational drug. The stock is now heading for an eye-popping annual gain of over 260% -- but it's still lost about 28% from its peak back in February. Should you take advantage of this opportunity and buy Viking on the dip? Let's find out.

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Market leaders Novo Nordisk and Eli Lilly

First, let's consider some background on this specific market. In recent years, Novo Nordisk and Eli Lilly introduced drugs that act on hormones involved in the digestion process, helping to regulate blood sugar levels and appetite. Novo Nordisk's involve the GLP-1 pathway, while Eli Lilly's treatments activate both GLP-1 and GIP, known as dual GLP-1/GIP receptor agonists. Viking's candidates, like Eli Lilly's, fall into the dual GLP-1/GIP category.

The results of these commercialized treatments, earlier in clinical trials and today in the real world, have been fantastic. And that's prompted patients to flock to doctors for prescriptions, resulting in demand outpacing supply. Even as Novo Nordisk and Eli Lilly found themselves unable to fully serve demand, they still brought in billions of dollars in revenue from these drugs. You'll probably recognize their names after seeing them in the news or across social media: Ozempic and Wegovy (made by Novo Nordisk) and Mounjaro and Zepbound (made by Eli Lilly).

Viking, a $7 billion biotech, aims to eventually compete with these giants. Novo Nordisk and Eli Lilly are worth more than $400 billion and $700 billion, respectively. Their size and first-to-market positions offer them a clear advantage, but that doesn't mean this up-and-coming player can't carve out share in the market -- especially considering the quality of its data.

Viking's recent trial data

In Viking's recent report, its oral candidate at the highest dose level resulted in an average weight loss of as much as 8.2% from baseline. This was over 28 days in a phase 1 trial. The level of weight loss and the tolerability of the treatment at 100-milligram doses are both impressive, and the pill formulation makes this candidate easier to take than the injectable weight loss treatments dominating the market today.

Of course, it's important to keep in mind that Viking isn't the only player with weight loss drug ambitions, which was evident at the recent ObesityWeek 2024, an annual meeting highlighting progress in the weight loss arena. For example, during the event, AstraZeneca shared promising early data for its oral GLP-1 candidate, AZD5004, and told Fierce Biotech that the company would "play to win" in the obesity drug market.

It's also important to remember that today's market giants are pushing other candidates through the pipeline -- they aren't just sitting still and depending on their current commercialized treatments. Eli Lilly is studying two weight loss candidates in phase 3 trials, one of which is an oral candidate.

Should you buy Viking Therapeutics?

Does Viking stand a chance in this market, and should you buy the stock on the dip? As mentioned, demand is high for weight loss drugs, and the market may multiply by 16 to reach $100 billion by the end of the decade, according to Goldman Sachs Research.

This suggests there's room for more than just two companies to succeed. Some drugs may enter the market with features that make them more suitable for a particular type of patient. So, the opportunity exists for Viking and others to carve out market share as long as efficacy and safety data are strong.

A small player like Viking may also win by attracting a partner or even a company that will offer to acquire the biotech. Those potential scenarios could score a win for investors. All of this means that Viking is a compelling buy on the dip for growth investors who can tolerate some risk.

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Adria Cimino has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Goldman Sachs Group. The Motley Fool recommends AstraZeneca Plc and Novo Nordisk. The Motley Fool has a disclosure policy.