With a gain of more than 531% over the last 12 months, shares of Viking Therapeutics (VKTX -3.56%) are a hot commodity, to say the least. And as of early November, there's one more big green flag suggesting that investors who take the plunge will be wealthier than before. Even an investment on the scale of $5,000 could see a meaningful run-up, assuming its plans to compete in the market for anti-obesity medicines come to fruition in the next couple of years.
With that in mind, let's take a peek at why this stock is worth buying.
Its candidate is looking stronger and stronger
As you probably know, Viking doesn't have any drugs approved for sale yet, but it does have a very promising investigational medicine that aims to help people to lose weight quickly and safely. That means it aspires to directly compete with the likes of Eli Lilly and Novo Nordisk, the big pharmas that currently split the bulk of the market for weight loss drugs.
Per new data it presented at the Obesity Week 2024 conference on Nov. 4, the investment thesis in favor of buying Viking is stronger than ever before, as there's more evidence supporting the idea that its lead candidate to treat obesity, VK2735, will be able to gain a significant market share if it ever gets approved for sale, even in the face of resistance from those incumbents.
VK2735 is being tested in two formulations: one that's a weekly injection, and one that's a daily pill. The pill form is expected to start its phase 2 clinical trials before the end of this year, and the injected form is slated to enter phase 3 relatively soon, pending discussions with regulators.
In its presentation, the company shared that among healthy volunteers treated with the highest-tested dose of the pill version of VK2735 for 28 days, on average participants lost 6.8% of their body mass, whereas participants given placebo pills lost only 1.4%. People were also able to keep the lost weight off for at least a month after treatment stopped, echoing similar results from a trial with the injected formulation. Mild nausea was the most common side effect.
Those data add to the growing body of evidence that Viking has a winning weight loss candidate on its hands that is effective in multiple formulations, which is a new green flag for the stock. Management also mentioned the possibility that lower doses of the VK2735 pill could potentially be used to help patients maintain their lost weight over the long term -- a key capability that major competitors like Novo Nordisk and Eli Lilly currently have no solution for.
One day, that could enable the business to capture revenue from patients for years and years, rather than just for the time it takes them to shed their excessive weight. And that's another bullish factor in Viking's favor.
There aren't many barriers to be concerned about
According to its third-quarter earnings report, Viking has $930 million in cash, cash equivalents, and short-term investments, and it had zero in the way of long-term debt. Over the trailing-12-month period, its operating expenses were only $134 million. So it has more than enough resources to advance both formulations of VK2735 through their remaining clinical trials, while still having plenty left over to invest in its other research and development (R&D) programs.
It probably even has enough money to launch additional clinical programs in obesity and fully fund them to completion. Biotech stock balance sheets don't ever get better than what this company has right now, especially not when the business in question doesn't have any medicines on the market yet.
That means if you buy this stock today with your $5,000, the odds of your shares getting diluted by a new stock offering are low, even if you hold your shares for a long time. It also means that Viking can afford to experience a handful of stumbles with its clinical programs before it becomes a problem.
But the stock isn't fully devoid of risks either. As the market's hopes for sales potential of the two VK2735 programs appear to be quite high, the stock is vulnerable to being rapidly deflated by any worse-than-sterling new data from the corresponding clinical trials, despite the fact that financially speaking, the consequences of such a mishap would be easily survivable.
So long as the company continues to impress, that won't happen. And with a new win fresh in hand, the chances are good that investing today will lead to a good return.
