Viking Therapeutics, Down 40%, Just Reached a New Milestone. Is the Stock a Buy Now?

Viking Therapeutics (NASDAQ: VKTX) is operating in one of the highest-growth pharma areas around. I'm talking about the weight loss drug market -- one that Morgan Stanley analysts say may multiply by 15 to surpass $100 billion later this decade.

Viking doesn't sell weight loss drugs yet, but it could be on the way. The biotech is studying injectable and oral formulations of VK2735 in clinical trials, and results so far have been impressive.

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As for stock performance, Viking won there too in the early part of last year. The stock surged 121% in one trading session about a year ago, right after Viking announced positive results from a VK2735 trial. In recent times, though, the stock has given up gains -- and this year, Viking has shed about 40%.

But brighter days may be ahead, and this positive moment may have already started with a recent milestone. Viking completed enrollment of a phase 2 trial of its VK2735 oral candidate and says it expects to report results in the second half of this year.

Considering this progress, is Viking a buy now? Let's find out.

Image source: Getty Images.

Weight loss drugs take the world by storm

So before talking about Viking specifically, let's discuss the type of weight loss drugs that have been taking the world by storm. They are known as GLP-1 and dual GIP/GLP-1 receptor agonists, and you might recognize them under the names of Ozempic and Wegovy by Novo Nordisk, or Mounjaro and Zepbound by Eli Lilly. These drugs act on hormones involved in digestion, and as a result, help control blood sugar levels and appetite.

In clinical trials and out in the real world, outcomes have been impressive -- and that's led to soaring demand for these products. Demand has been so high that all of these drugs have been on the U.S. Food and Drug Administration's shortage list until recently. And the reason they've exited the list isn't linked to a drop in demand, but instead to an increase in manufacturing capacity at both Novo Nordisk and Eli Lilly. Today, the two pharma players dominate the weight loss drug market, generating billions of dollars in revenue from these top sellers.

Where does Viking fit into this picture? Viking's candidate falls into this category of drugs, so it works in the same way as its earlier-to-market rivals. It's difficult to compare the candidates head to head, since we're talking about one involved in clinical trials with certain parameters versus treatments that are out in the marketplace.

But Viking's trial results have been strong so far. For example, the injectable VK2735 in a phase 2 trial met primary and secondary endpoints, and participants saw a reduction in mean body weight of as much as 14.7% after 13 weeks of dosing. And a phase 1 trial of the oral version produced weight loss of as much as 8.2% in just 28 days.

The finish line may be just ahead

If all continues along positively and at this pace, Viking's product -- in both formulations -- could reach the finish line over the next few years. Though Novo Nordisk and Lilly are leaders, due to the high demand for these products, there's room for others such as Viking to enter and carve out a spot. And in the near term, an announcement of trial results later this year could act as a catalyst for the stock.

Viking doesn't yet have other drugs on the market to generate revenue right now, but it has more than $900 million in cash -- and the company has said this puts it in the position to support the development of its weight loss program. Investors also have speculated that Viking might receive takeover offers from big pharma companies eager to scoop up a strong weight loss portfolio. That could be another winning outcome for investors.

Assess your comfort with risk

Now, let's get back to our question: Is Viking stock a buy now? Recent declines haven't been linked to any particular news from the company, but instead, they may be seen as a shift out of stocks seen as "risky" amid general concerns about economic growth. Viking could be considered risky because at any point during clinical development, a candidate could fail, leaving the company much farther than expected from revenue goals. This is something all biotechs that haven't yet commercialized a product face -- so it isn't an issue exclusive to Viking.

Your decision to buy Viking depends heavily on how you feel about that risk. If it makes you nervous, you're better off opting for pharma or biotech companies that already have products on the market. But if you can accept some risk and are interested in holding onto a stock for several years as it progresses to product commercialization, then Viking makes a fantastic growth buy today -- and one that could surge on potential positive trial news ahead.

Should you invest $1,000 in Viking Therapeutics right now?

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Adria Cimino has no position in any of the stocks mentioned. The Motley Fool recommends Novo Nordisk and Viking Therapeutics. The Motley Fool has a disclosure policy.