Following a 27% decrease over the past month, is Viking Therapeutics' stock currently an attractive buying opportunity?
With an increasing number of companies jumping into the weight loss sector, focusing on GLP-1 drugs that could potentially revolutionize their businesses, Viking Therapeutics (VKTX -1.09%) is one of them. The company, valued at a modest size in the healthcare industry, has a functioning GLP-1 treatment in development that has investors hopeful it could yield billions in revenue. Despite recent turbulence, is Viking Therapeutics still an enticing investment at its current reduced price?
Recent Selloff: What's Behind the Decline?
Although Viking Therapeutics' shares have witnessed a nearly triple surge this year, a cooling off period has taken place in the last month. This decline, which includes a 27% fall in the month of November, might be due to investors cashing out profits ahead of the end of 2024, or perhaps a shift in market sentiment towards weight loss drugs.
Valuation and Market Cap: Evaluating the Risk-Reward Balance
With a market cap of over $6 billion, Viking Therapeutics' valuation is exceptionally high considering the company is non-revenue generating currently. Its share price drop can be attributed to pessimism stemming from the assumption that the company will obtain at least one approval in the future for its promising drugs like VK2735.
The company has recently completed Phase 2 trials for VK2735, which has demonstrated the ability to help individuals lose approximately 14.7% of their body weight over a 13-week period. Viking Therapeutics also has a promising oral weight loss pill in the works, which could prove to be a more acceptable option for those not comfortable with injectables.
Moreover, the company's promising treatment for nonalcoholic steatohepatitis, VK2809, demonstrated a reduction in liver fat of 12% over a 12-week period in a recent Phase 2 trial. This is undoubtedly positive news; however, there is still uncertainty surrounding its future approval.
The Competitive Landscape: Established Players and Emerging Challengers
Viking Therapeutics isn't alone in this competitive market. Giants such as Novo Nordisk and Eli Lilly dominate the GLP-1 space with top-selling drugs such as Ozempic, Wegovy, Mounjaro, and Zepbound. Additionally, high-profile companies like Amgen and Pfizer are also working on their own weight loss drug solutions. Small drugmakers are also eager to make a mark in the potential $100 billion anti-obesity market by 2030, according to Goldman Sachs estimates.
Is Viking Therapeutics Worth Investing In?
Investing in Viking Therapeutics is a risky play, considering its high market cap for a company in early-stage development. While there is plenty of optimism surrounding its business, the assumption of at least one approval (likely related to the lucrative GLP-1 drug market) appears to be factored into its current price. This means that if approval does not materialize, there may be an abrupt decrease in stock value.
In the case that approval is granted, Viking Therapeutics has the potential to generate substantial revenue. This would make it an attractive investment opportunity for those willing to accept the associated risks. Albeit, this is hardly an obligatory choice for investors, given its high volatility and uncertainty.
Enrichment Data:
Risks and Challenges:
- Market Volatility: The competitive GLP-1 market can be unpredictable, posing potential risks to investors. An over-reliance on weight-loss treatments for cosmetic purposes could raise significant ESG issues, impacting both patients and companies marketing these drugs.
- Regulatory Approvals: Viking Therapeutics is reliant on receiving regulatory approval for its promising drugs, VK2735 and VK2809. Ongoing discussions with the FDA will highlight the potential challenges in advancing its treatment for injectable obesity to a Phase 3 trial.
- Market Saturation: The GLP-1 market is highly competitive, with established players dominating the scene. Smaller companies like Viking Therapeutics will have to prove their merit and efficacy to carve out a piece of the pie, potentially facing significant financial and reputational risks in the process.
Opportunities and Advantages:
- Strong Pipeline: Viking Therapeutics' dual agonist drug, VK2735, has shown promising results, with a potent reduction in body weight in both subcutaneous and oral formulations. This sets the company up for potential future success in the weight loss market.
- Acquisition Opportunities: The similarity between VK2809 and FDA-approved drug, Rezdiffra, could make Viking Therapeutics an appealing acquisition target for Big Pharma companies. This would reduce risk for potential buyers and bolster Viking's financial position.
- Targeting Major Markets: The company's drugs are positioned to tackle substantial markets, such as obesity and nonalcoholic steatohepatitis. If successful, these treatments could generate substantial revenue and boost Viking Therapeutics' market presence.
In conclusion, while Viking Therapeutics faces considerable risks in the competitive GLP-1 market, its strong pipeline and potential for blockbuster drugs represent captivating prospects for long-term growth and success. However, investors should consider the associated risks and carefully weigh their investment decisions.
Even with the company's promising drug developments and high market expectations, the recent decline in Viking Therapeutics' share price might provide an opportunity for some investors to enter the market at a lower cost. This situation could be advantageous for those who see potential in the company's financial growth through GLP-1 drugs like VK2735 and their oral weight loss pill.
In the context of finance and investing, managing the risk-reward balance is crucial when considering an investment in Viking Therapeutics, given its high market capitalization and reliance on regulatory approvals. This means that implementing a diversified investment strategy could help mitigate potential losses if plans for approval fail to materialize.
