One particular healthcare stock has shown its ability to soar on good news -- and it's had plenty of it. This year the company reported solid results from trials of a candidate meant to address one of today's hottest growth areas: weight loss. The weight loss drug market may reach $130 billion by 2030, according to Goldman Sachs Research, an increase from its earlier estimate of $100 billion.
Viking Therapeutics (VKTX -3.56%) saw its shares rise 121% in one trading session after its initial clinical trial report back in February. The stock has since pulled back from that high point, but it still continued to advance, heading for an annual increase of about 170%. Investors are optimistic about Viking's ability to carve out share in the weight loss drug market, which is now dominated by pharma giants Eli Lilly (LLY -1.38%) and Novo Nordisk (NVO -0.32%).
This up-and-coming biotech player may be on the right path, but still, investors should proceed with caution. That's because this skyrocketing stock comes with a hidden risk. Let's find out more.
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Viking's most advanced program
First, though, a bit of background on Viking and its programs: The company specializes in the treatment of metabolic diseases and rare diseases, but its most advanced program -- and the one attracting a good deal of attention -- is the one aiming to treat obesity. Viking's candidate, VK2735, generated fantastic results in a phase 2 study, and the company soon aims to launch a phase 3 trial. This is for the injectable version of the investigational drug.
Viking also is studying an oral version of VK2735, and after positive phase 1 results, the company aims to launch a phase 2 trial in the current quarter.
Both versions of VK2735 operate in the same way as Eli Lilly's star weight loss drug, Zepbound. All three belong to a class known as GLP-1/GIP receptor agonists, drugs that act on two hormonal pathways involved in the process of digestion. They've shown their ability to both regulate blood sugar levels and control appetite, helping patients quickly shed pounds.
Lilly's Zepbound has brought in blockbuster revenue in less than one full year of commercialization, and demand has surpassed supply. The big pharma also sells the same molecule -- tirzepatide -- under the name Mounjaro for type 2 diabetes. But doctors have prescribed Mounjaro for weight loss too, and it's been bringing in billion-dollar revenue.
Ozempic and Wegovy
The story is the same for Novo Nordisk, with its drugs Ozempic and Wegovy. They're known as GLP-1 receptor agonists, acting on one hormonal pathway, and have produced results similar to those of Eli Lilly's drugs.
Why are investors so excited about Viking if Lilly and Novo Nordisk already dominate the market? The Lilly and Novo Nordisk drugs are injectables, and must be self-administered weekly. Results from the phase 2 trial of Viking's VK2735 injectable form show that monthly dosing may be possible. This is positive because it increases convenience for patients -- most people would prefer an injection once every month over going through it on a weekly basis. Even better, Viking's pill formulation avoids needles altogether, and makes it easy for patients to take the treatment on the go.
But it's important to remember that Lilly and Novo Nordisk aren't sitting on their laurels. They're working on better weight loss drugs -- and these candidates are in phase 3 trials, meaning if all goes well, they could reach commercialization before Viking's potential products. Lilly and Novo Nordisk each have an oral candidate as well as an injectable that's expected to produce better results than their current treatments.
New Eli Lilly and Novo Nordisk drugs ahead
So the hidden risk for Viking is the Lilly and Novo Nordisk drug candidates that haven't yet reached commercialization -- but could be on the way.
Does this mean investors should forget about Viking? Not necessarily. The biotech, if successful, still could carve out market share due to the great need for weight loss drugs. There's room for more than a couple of companies to grow revenue in this area. But it's important for investors to remember that Viking's candidates aren't just competing with the Lilly and Novo Nordisk drugs of today -- but also with those big pharmas' potential drugs of tomorrow.
Viking is still a great biotech stock to buy today, but only if you can accept that risk.
