Caution: Despite its Surge, This Stock Carries an Unseen Threat
A particular healthcare stock has demonstrated its potential to increase dramatically following positive news. This year, the company released promising results from trials of a potential solution aimed at tackling a significant growth area: weight loss. The weight loss drug market is predicted to reach an astonishing $130 billion by 2030, according to Goldman Sachs Research, surpassing its earlier estimate of $100 billion.
Viking Therapeutics (VKTX 1.18%) saw its shares skyrocket by 121% in a single trading session following the initial clinical trial results revealed in February. Since then, the stock has moderated but has continued to climb, aiming for an annual increase of around 170%. Investors are hopeful about Viking's chances of securing a slice of the weight loss drug market, currently dominated by pharmaceutical giants Eli Lilly (LLY -0.24%) and Novo Nordisk (NVO 0.34%).
Despite the stock's impressive performance, investors should tread cautiously. There's a hidden risk associated with this soaring stock. Let's delve deeper.
Viking's most promising project
For more context, let's discuss Viking and its projects. The company specializes in the treatment of metabolic diseases and rare diseases, with its most advanced project attracting a significant amount of attention. This project focuses on combating obesity. Viking's candidate, VK2735, showed exceptional results in a phase 2 study, and the company plans to launch a phase 3 trial for the injectable version of this investigational drug shortly.
Viking is also developing an oral version of VK2735, and following positive phase 1 results, the company aims to begin a phase 2 trial in the current quarter.
Both versions of VK2735 function similarly to Eli Lilly's popular weight loss drug, Zepbound. All three belong to a class of medications known as GLP-1/GIP receptor agonists. These drugs impact two hormonal pathways involved in the digestion process, regulating blood sugar levels and controlling appetite, enabling patients to lose weight quickly.
Lilly's Zepbound has generated significant revenue within a year of commercialization, with demand exceeding supply. Eli Lilly also sells the same molecule under the name Mounjaro for type 2 diabetes. However, doctors have also prescribed Mounjaro for weight loss, contributing to its billion-dollar earnings.
Ozempic and Wegovy
Novo Nordisk's drugs Ozempic and Wegovy share similar characteristics to Eli Lilly's. They're both GLP-1 receptor agonists, operating on a single hormonal pathway, and exhibiting results comparable to those of Eli Lilly's drugs.
Investors are intrigued by Viking, given that Lilly and Novo Nordisk already dominate the market. The Lilly and Novo Nordisk drugs are injectables and require weekly self-administration. However, the phase 2 trial results for Viking's VK2735 injectable form suggest that monthly dosing may be possible, making it more convenient for patients. Viking's oral formulation also eliminates the need for injections, making the treatment easily portable.
However, it's important to note that Lilly and Novo Nordisk aren't resting on their laurels. They're currently developing more effective weight loss drugs, which are in phase 3 trials, meaning they could potentially enter the market before Viking's potential products. Both companies have an oral candidate and an injectable preparing for better results than their current treatments.
Upcoming Eli Lilly and Novo Nordisk drugs
The hidden risk for Viking lies in the Lilly and Novo Nordisk drugs yet to reach commercialization but presently in development.
Should investors discard Viking because of this? Not necessarily. The biotech, if successful, could still carve out a market share due to the significant demand for weight loss drugs. There's potential for multiple companies to grow revenue in this area. However, it's crucial for investors to remember that Viking's candidates are not just competing against the current Lilly and Novo Nordisk drugs but also the potential drugs these pharma giants could introduce in the future.
Viking is still a promising biotech stock to invest in today, but only if you're willing to accept this risk.
Investors should consider the potential impact of upcoming weight loss drugs from Eli Lilly and Novo Nordisk on Viking Therapeutics' market share. Despite this risk, the significant demand for weight loss drugs and Viking's innovative approach with VK2735 make it a promising investment opportunity. Investors should carefully monitor the progress of Viking's projects and the developments in the market to make informed investment decisions.
To diversify their investment portfolio, savvy investors might consider allocating funds to both Viking Therapeutics and the established pharmaceutical giants, such as Eli Lilly and Novo Nordisk, in order to mitigate potential risks and potentially capitalize on the anticipated growth of the weight loss drug market.
