Viking Therapeutics' Oral Obesity Drug Advances to Phase 3 Testing. Is Now the Time to Buy This Biotech Stock?

The market for weight loss drugs continues to move fast, and one of the main arenas for competition right now is how those medicines are formulated. For a lot of people, taking a daily pill is less burdensome than taking a once-a-week injection, which is why drug developers are working on porting their injectables over to the oral route.

Viking Therapeutics (NASDAQ: VKTX) doesn't yet have approval for its injectable candidate, VK2735, but it does have decent data, which is why its oral formulation of the same molecule is about to enter late-stage testing. Given this setup, is now a good time to buy Viking's stock?

Image source: The Motley Fool.

The next phase is on the way, but competition will become an obstacle

VK2735 activates the receptors for two gut hormones, GLP-1 and GIP, as does Eli Lilly's Zepbound. Citing feedback from an end-of-phase 2 meeting with the FDA, Viking plans to start phase 3 trials of the pill in the fourth quarter.

In phase 2 testing, patients taking the pill lost up to 12.2% of their body weight over 13 weeks, compared with just 1.3% in the placebo group. But 20% of patients receiving VK2735 quit over side effects, versus 13% on placebo. And in the top-dose cohort, 38% stopped treatment -- indicating that the candidate may struggle against competitors deemed by prescribers to be less likely to cause burdensome side effects.

Viking says the doses it plans to test showed no meaningful difference from placebo in gut side effects. But phase 2 showed a clear dose-response relationship between weight loss and side effects, so it's very likely that lower, more tolerable doses lead to less weight loss.

Lilly's commercialized weight-loss pill, Foundayo, led patients to experience 11.1% weight loss after 72 weeks of treatment, versus 2.1% for placebo, and side effects caused only 5% to 10% of users to stop. What's more, the trial ran about five times longer than Viking's phase 2 despite having a much lower discontinuation rate due to side effects.

There may be a niche in the market to explore if Viking's candidate proves more effective over short time frames despite being more unpleasant. But it's also true that many patients will prefer a slower option that's less uncomfortable, like Foundayo.

The shot could be the bigger prize

Viking's injectable formulation of VK2735 appears to be more potent than the pill, with patients achieving up to 14.7% weight loss after 13 weeks of weekly shots in a phase 2 trial.

In a separate phase 1 study, 13 patients who remained on weekly 17.5-mg doses through week 33 lost 21.7% of their body weight. Interestingly, a subgroup of patients who switched to monthly shots maintained 90% of their weight loss over 12 weeks, versus 61% for placebo. If those results are borne out, it could be a point of favorable differentiation from the competition.

VK2735's injectable is scheduled to conclude its phase 3 testing in July 2027. If the results resemble those of phase 2, VK2735 could become a credible alternative to Zepbound. Monthly dosing could set it apart, but the phase 3 trials only test weekly dosing.

So a lot is riding on those results for Viking's stock. But even if the biotech produces positive results for its jab and gets it approved and commercialized, and eventually does the same for its pill form, it'll still be trying to enter a crowded market that's increasingly cornered by the incumbents.

Viking's stock is still worth buying based on its data today and what it could stand to gain if it succeeds, but investors should be aware that it'll have a hard time gaining commercial traction, given what we know about how its candidates perform today.

Alex Carchidi has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Eli Lilly. The Motley Fool recommends Viking Therapeutics. The Motley Fool has a disclosure policy.