Why Viking Therapeutics Tumbled by More Than 10% This Week

News of a fresh licensing deal by a well-capitalized rival sent Viking Therapeutics (NASDAQ: VKTX) stock into something of a tailspin this week. According to data compiled by S&P Global Market Intelligence, the biotech's share price fell by just over 10% over the period as a result.

Merck makes a move

That news hit the headlines on Wednesday, with global pharmaceutical company Merck announcing that it had entered into an exclusive worldwide licensing arrangement for a GLP-1 obesity drug currently in development. It is licensing HS-10535, a pre-clinical experimental treatment administered orally, that was developed by Chinese biotech Hansoh Pharma.

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GLP-1 weight loss drugs have been wildly popular since they first started winning U.S. Food and Drug Administration (FDA) approval in mid-2021. Their popularity in the American market is understandable, given the relatively high levels of obesity within our borders.

Merck will make an upfront payment of $112 million for the agreed-upon rights to HS-10535, and Hansoh will be eligible for up to an additional $1.9 billion in milestone payments, plus royalties, if and when the drug is approved and commercialized.

Viking might get raided

If HS-10535 performs with efficacy in clinical trials and is ultimately approved and brought to market, it could produce quite a headache for Viking.

The American company is well advanced in the development of its own quite promising obesity treatment. VK2735, which is also taken orally (in contrast to the current FDA-approved weight loss drugs Wegovy from Novo Nordisk and Eli Lilly's Zepbound), has tested well in several clinical trials. While no drug's approval is guaranteed, so far, VK2735 looks bound for success.

Viking is small when matched against the size and financial strength of Merck, however, so if HS-10535's development is successful, it could be quite the hard-to-top competitor.

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