Why This Mid-Cap Biotech Could Be the Dark-Horse Threat to Eli Lilly and Novo Nordisk

The market for anti-obesity drugs seems to be at risk of calcifying into a dominant duopoly. Eli Lilly (NYSE: LLY) and Novo Nordisk (NYSE: NVO) split it through their GLP-1 medicines: Zepbound (tirzepatide) and Wegovy (semaglutide) for weight management, and Mounjaro (tirzepatide) and Ozempic (semaglutide) for type 2 diabetes. Together they hold nearly the entire U.S. market for branded obesity and diabetes treatments. Those are the kind of conditions that may be ripe for a new entrant to disrupt the incumbents.

Viking Therapeutics (NASDAQ: VKTX) wants to be that challenger. Its lead candidate, VK2735, has strong early data in hand, and comes as both a weekly shot and a daily pill. And because the company's market cap is just $3.5 billion, the stock is small enough that a modest win of market share could translate into an outsize return for shareholders. So let's investigate how and why this biotech could threaten Lilly and Novo Nordisk.

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The biotech's data look good but not great

VK2735 is a dual agonist of the GLP-1 and GIP receptors, meaning that it uses the same two-target approach as Eli Lilly's tirzepatide.

In one phase 2 trial, a weekly shot of VK2735 led to participants losing up to 14.7% of their weight over 13 weeks; in a separate phase 2 trial, patients taking the pill formulation saw a maximum weight loss of 12.2% over the same period. In both trials, the gastrointestinal side effects reported by patients were overwhelmingly mild or moderate. Importantly, in the injectable trial, the pace of weight loss didn't appear to be tapering at the end of the study period, leaving open the possibility that patients could lose more weight by simply staying on the treatment longer.

For context, you should also know that in a head-to-head trial, patients treated with tirzepatide lost 20.2% of their body weight over 72 weeks, whereas patients given semaglutide lost only 13.7%. So, over its 13-week study period, Viking's candidate looks competitive with the leaders. Bear in mind, though, that these are separate trials with different patients, doses, and follow-up lengths, so any comparison is suggestive rather than direct. And weight loss on these drugs tends to slow the longer people stay on them.

But while Viking could win an efficacy matchup against Lilly's and Novo Nordisk's best products on the market, it might have a harder time with the late-stage pipeline candidates that those more mature players are trying to bring to the market.

Eli Lilly's candidate retatrutide is a triple agonist, adding glucagon as a target to the GLP-1/GIP pairing. It reported that after 80 weeks of treatment in a phase 3 clinical trial, patients had lost 28.3% of their body weight, with 45% of subjects shedding at least 30% of their weight.

Similarly, clinical trial data for Novo Nordisk's candidate, CagriSema, show that patients lost about 22.7% of their body weight after 68 weeks of treatment. The company has already filed approval paperwork with the U.S. Food and Drug Administration (FDA).

Viking's candidate is likely still competitive with both of those other programs, as its study period was much shorter. But be aware that the odds of VK2735 being approved and becoming a decisive win for the biotech are slim; it's still an underdog in the GLP-1 market it's targeting.

The base case is decent

Viking Therapeutics could threaten the top and bottom lines of both Novo Nordisk and Eli Lilly, if VK2735's late-stage trials confirm the data already published. If the market for weight loss medicines reaches $100 billion before the end of the decade, as some analysts predict, seizing even a 1% share of the market would lift the biotech's valuation well above its current level.

The phase 3 trials for the injectable formulation of VK2735 only finished enrolling earlier this year, and because the studies run well over a year, their top-line data won't arrive before 2027. The oral formulation's phase 3 is expected to begin around the end of this year.

If both trials replicate the earlier results, it'll signal that Viking Therapeutics' chances of becoming a player in weight loss drugs have improved from "fair" to "pretty good." If, on the other hand, the data show that VK2735 is actually better than what Lilly and Novo Nordisk can deliver with their next crop of weight-loss candidates in the pipeline, the entire situation will shift, and its odds of being a more formidable threat will rise sharply.

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