Why This Beaten-Down GLP-1 Stock Could Be a Steal

Key Points

• Viking Therapeutics' shares plunged after mixed phase 2 results for a GLP-1 candidate.

• However, the data wasn't nearly as bad as the market's reaction suggested.

• Viking could soar on future progress with this and other candidates.

• 10 stocks we like better than Viking Therapeutics ›

Developing GLP-1 medicines is all the rage these days in the pharmaceutical and biotech industries. The market is growing rapidly, and many (if not most) leading drugmakers are looking to capitalize on the trend.

One smaller company that's also in the race is Viking Therapeutics (NASDAQ: VKTX), a mid-cap biotech. Its stock has performed poorly this year, but some of the reasons behind the decline are somewhat unjustified.

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The market may be underestimating the biotech's potential, and the stock could have significant upside from its current levels. Here's why Viking could be a steal right now.

Image source: Getty Images.

Not-so-bad mid-stage results

In August, Viking reported data from a 13-week phase 2 study for the oral version of its leading GLP-1 candidate, VK2735, being developed as a weight management therapy. Investors focused on the fact that many participants dropped out of the trial, mostly due to gastrointestinal (GI) side effects. According to Viking, 20% of the patients in the study dropped out because of adverse reactions, compared to just 13% for those taking a placebo.

That raises questions as to whether the medicine can earn regulatory approval. And even if it does, how many patients would want to take it?

However, several factors help paint a brighter picture. One is that oral VK2735 resulted in a mean weight loss of 12.2% over 13 weeks at the highest dose (120 mg). How does that compare to competing medicines? Novo Nordisk's oral semaglutide led to an average weight loss of 13.6% in 64 weeks, while the highest dose of Eli Lilly's orforglipron induced a mean weight loss of 12.4% over 72 weeks. These two pharmaceutical giants lead the GLP-1 market.

While it's always challenging to compare medicines across different studies, the efficacy of oral VK2735 (at 120 mg) is comparable to that of orforglipron and oral semaglutide, even in less than one-quarter of the time, which is notable. True, the highest dose of oral VK2735 also had the most discontinuations due to GI-related adverse reactions. However, the medicine's lower doses had a competitive weight loss profile, considering the 13-week schedule, and had lower dropout rates. These may still be commercially viable, but it will take a phase 3 study to confirm that.

The reason Viking Therapeutics looks attractive at current levels is that, while it still has a highly attractive mid-stage oral GLP-1 candidate that should soon move to phase 3 studies, the market has reacted as if oral VK2735 is practically dead in the water. Viking's shares are down by 38% since the day before it announced those phase 2 results.

Some things to consider

The weight loss market is experiencing rapid growth. There are still no oral options in the field, although that could change soon, with oral semaglutide and orforglipron set to earn approval within the next year. However, VK2735 remains one of the more attractive mid-stage candidates. Considering that oral GLP-1 medicines are faster and easier to manufacture than subcutaneous versions, they have the potential to achieve significant success.

That's before we look at the rest of Viking Therapeutics' pipeline. Its subcutaneous version of VK2735 is currently in phase 3 studies after acing mid-stage trials. The company also has an investigational therapy for metabolic dysfunction-associated steatohepatitis (MASH), which successfully completed phase 2 trials. Clinical progress across the pipeline will jolt Viking's stock and could lead to massive gains in the share price over the next few years.

That said, the biotech company remains somewhat risky. It doesn't have a single commercialized product, generates no revenue or profits, and lacks a partner with substantial funding. Clinical setbacks will sink Viking Therapeutics, as evidenced by its mixed phase 2 results for oral VK2735.

Even so, the company's upside is huge. It's also worth noting that management is already preparing for the commercial stage for VK2735. Earlier this year, Viking signed a manufacturing agreement to support the eventual commercial launch of its leading candidate.

With all that said, Viking Therapeutics' shares are worth serious consideration, especially if you're a risk-tolerant investor. It's best to start by initiating a small position, and add more as the company makes clinical and regulatory progress.

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