Watch Out, Eli Lilly and Novo Nordisk: Viking Therapeutics' Pill Could Crash the Weight-Loss Party

Eli Lilly (NYSE: LLY) and Novo Nordisk (NYSE: NVO) dominate the weight-loss drug market and have for a while. What's more, recent launches are helping them expand this area and attract new patients. In January, Novo Nordisk started offering oral Wegovy, a medicine that has had tremendous success so far.

Eli Lilly recently introduced its own weight-loss pill, Foundayo, after receiving regulatory approval on April 1. These two companies could remain leaders for a long time, but growing competition, notably from Viking Therapeutics (NASDAQ: VKTX), may weaken their hold on the market. Here's what investors need to know.

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The importance of oral anti-obesity drugs

First, let's consider why pills seem to be a hit among patients seeking obesity treatments. The current leaders in this niche -- Wegovy and Zepbound -- are both administered subcutaneously once a week. They are very effective, no doubt, but injections have several drawbacks, even beyond the fact that some people don't like needles, which means treatment adherence is harder for those patients. Skipping doses is hardly conducive to optimal results.

Furthermore, injections must be stored and refrigerated under specific conditions to maintain efficacy. It's not like a specialized, medical-grade refrigerator is needed for this. Still, pills are easier to manage, especially for people who are constantly traveling. These two factors, added to the fact that the market for weight loss drugs arguably remains underpenetrated, explain the success of weight loss pills.

Why Viking Therapeutics could make a splash

Viking Therapeutics' leading weight-loss candidate, VK2735, is a GLP-1 medicine being developed in both oral and subcutaneous formulations. Last year, the company completed phase 2 studies for the oral version. Oral VK2735 led to a mean weight loss of up to 12.2% at the highest dose in 13 weeks. The company also stated that no weight-loss plateau was observed. This is a phenomenal performance over such a short period.

It's always hard to compare efficacy across clinical trials, but it's worth pointing out that in a phase 3 study, Eli Lilly's oral weight loss pill posted an average weight loss (at the highest dose) of 12.4%, but that was in 72 weeks. Oral VK2735 will be tested in longer studies and a larger pool of patients in pivotal clinical trials. If it can confirm and extend the efficacy results we saw in its mid-stage studies, it could carve out a niche in this large and fast-growing market.

Consider the risks first

Viking Therapeutics' shares fell off a cliff when it first reported phase 2 results for oral VK2735. Although efficacy numbers were excellent, tolerability was not. A high number of patients stopped the trial due to gastrointestinal-related side effects. They were especially prevalent at the highest dose; 38% of patients taking it stopped treatment early. What does this mean for Viking Therapeutics?

The company will have to demonstrate in phase 3 studies that this candidate can post strong efficacy along with an acceptable safety profile. Viking Therapeutics may try to accomplish that by focusing on lower doses that still performed pretty well in the phase 2 study. Or maybe it could test the effect of starting patients on various low doses and gradually getting them to the highest one to help limit side effects. So, will Viking Therapeutics crash the weight loss party Eli Lilly and Novo Nordisk are throwing? Is the stock a buy?

My view is that, even with oral VK2735 and the subcutaneous version of the medicine making progress, Viking Therapeutics is a fairly risky stock. It is a clinical-stage biotech company that generates no revenue, is consistently unprofitable, and whose shares could drop off a cliff if upcoming data readouts don't work out as planned. It will also face increasing competition as more pharmaceutical leaders try to launch their own weight-loss products. However, there could be plenty of upside for the stock as well.

Investors with a high tolerance for risk may want to consider initiating a small position in the company before its shares (potentially) soar on strong data readouts.

Prosper Junior Bakiny has positions in Eli Lilly, Novo Nordisk, and Viking Therapeutics. The Motley Fool has positions in and recommends Eli Lilly. The Motley Fool recommends Novo Nordisk and Viking Therapeutics. The Motley Fool has a disclosure policy.