There’s a growing number of companies entering the weight loss space, focusing on GLP-1 drugs which can be game changers for their businesses. And one of them is Viking Therapeutics (VKTX -2.70%), which has a promising GLP-1 treatment in development that investors are hopeful will generate billions in revenue for the modestly sized healthcare company. It may even lead to an acquisition.
In the past month, however, excitement around Viking has cooled, considerably. During November, the stock fell by 27%, hitting lows it hasn’t been at in months. At a cheaper valuation, has Viking Therapeutics become too good of a buy to pass up right now?
Viking’s shares have still nearly tripled this year — but there are risks
Although it looks like there may be some mounting pessimism surrounding Viking Therapeutics stock recently, its shares are still up more than 180% this year, as of the end of last week. Investors may simply be cashing out some profits heading into the close of 2024.
And as news from other GLP-1 drugmakers comes out, that could also serve as a reminder that although it has a promising product in its pipeline in VK2735, even upon approval, it may face some serious competition. Beyond Novo Nordisk and Eli Lilly, which are the leaders in the GLP-1 space right now with top drugs such as Ozempic, Wegovy, Mounjaro, and Zepbound in their portfolios, there are also companies such as Amgen and Pfizer which have been developing their own drugs. And there also many smaller drugmakers looking to make a big play in what could be a massive anti-obesity drug market worth a staggering $100 billion or more (by 2030), according to estimates from Goldman Sachs.
Investors may also be concerned that the new incoming Republican government may take a tougher stance on weight loss drugs, which could impact approvals and coverage of these types of treatments.
Its $6 billion market cap is based heavily on the assumption it will obtain at least one approval in the future
While Viking’s stock has fallen of late, investors shouldn’t forget that at $6 billion, its market cap is high, considering this is a company which doesn’t generate any revenue right now. It has completed phase 2 trials for VK2735, which have shown that the drug can help people lose around 14.7% of their body weight over a 13-week period. It also has a promising weight loss pill in development, which could be an even bigger game changer as it may be a more tenable option for people who don’t want to use injectables.
The company also has a promising treatment (VK2809) for nonalcoholic steatohepatitis, better known as NASH. In a recent phase 2 trial, it showed it could reduce liver fat over a period of 12 weeks. While that’s good news, it still may have a long way to go before it completes another trial and obtains approval — which is by no means a guarantee.
Viking has multiple promising products in its pipeline which could lead to future revenue growth, but it will take time for that to happen, and there’s a possibility that they could stumble along the way or not be the growth catalysts investors expect them to be. But with a fairly high market cap for a business during such early stages of development, Viking’s investors appear to be pricing in approval for at least one of its drugs.
Is Viking Therapeutics a good buy at its reduced price?
It’s hard to call a stock which has a market cap north of $6 billion a bargain buy when it has no approved products it can rely on for future growth. While there is a lot of optimism surrounding the business, the assumption of at least one approval (likely related to the highly attractive GLP-1 drug market) appears to be priced in, and that’s the biggest risk for investors who buy the healthcare stock right now — if that approval doesn’t happen, there could be a sharp sell-off.
This is the type of stock it might be worth considering putting a small amount of your portfolio toward, assuming you are OK with the risk, given the potential upside Viking may possess if VK2735 obtains approval. But this is still a risky investment overall, and it may not be suitable for most investors.
David Jagielski has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Goldman Sachs Group and Pfizer. The Motley Fool recommends Amgen and Novo Nordisk. The Motley Fool has a disclosure policy.