Viking Therapeutics Stock Soars 36% on Weight-Loss Drug Data. Why It's Not Too Late to Buy the Stock.

Investors looking to capitalize on the rapidly expanding weight loss drug market have increasingly more options. Eli Lilly (NYSE: LLY) and Novo Nordisk (NYSE: NVO) are still the leaders, but several other drugmakers are making significant clinical headway. One of them is Viking Therapeutics (NASDAQ: VKTX), a clinical-stage biotech. Viking Therapeutics was having a fairly uneventful year until recently, when it posted highly encouraging results from a clinical trial, sending the stock soaring by more than 30% in one day. Let's look deeper into these results and determine what they could mean for Viking's prospects.

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Viking makes a case for maintenance dosing

Let's start with some background on how GLP-1-based weight loss medicines work. By mimicking naturally occurring hormones such as GLP-1, which promotes satiety, these medications help patients feel fuller for longer, leading them to eat less and aiding weight loss.

However, many people gain the weight back after stopping treatment, partly because of the return of food noise. Several companies are looking for ways to help people keep the weight off. Viking Therapeutics tested various doses of its leading anti-obesity candidate, VK2735, administered subcutaneously every other week or monthly (VK2735 also mimics the action of the GIP hormone).

The results were impressive. Patients lost an average of about 16% to 19% of their weight over 21 weeks, after which they switched to less frequent dosing. Those taking the medicine every other week maintained up to 97% of their weight loss three months after switching to this new dosing schedule, and patients taking it monthly maintained up to 90% of their weight loss. Those taking a placebo maintained only 61% of their weight loss over the same period. These results suggest that patients may not need to continue weekly injections to maintain most of their previously achieved weight loss.

They could, potentially, switch to a more convenient dosing schedule. There is also an important opportunity here for Viking Therapeutics to steal some of its competitors' patients. Suppose someone loses a significant amount of weight with Wegovy or Zepbound but is worried about gaining it back once they stop treatment. This person may be able to switch to Viking's VK2735 on an every-other-week or monthly regimen and receive 12 or 26 doses per year instead of 52 -- that's a huge difference.

The caveat here is that these results apply only to patients who initially lost weight on VK2735, so we can't extrapolate these results to patients who lost weight on Zepbound or Wegovy. Also, the study was fairly small, with only about 180 patients. That was enough to provide proof-of-concept evidence, but Viking Therapeutics will need similar successes in larger clinical trials.

There are more catalysts ahead

Viking Therapeutics plans to run a second part of this study, in which it will test oral maintenance dosing regimens using an oral formulation of VK2735. The company is also testing subcutaneous VK2735 in two Phase 3 studies, and it should start late-stage clinical trials for oral VK2735 by the end of the year. Viking Therapeutics' shares may have soared after its recent clinical win, but there is plenty more upside ahead, provided the company can deliver further successes in ongoing and upcoming studies.

The recent data once again highlighted just how promising VK2735 is. Even beyond the maintenance results, the first part yielded a robust mean weight loss of roughly 16% to 19% over 21 weeks (versus 0.1% for those taking a placebo). That said, there are potential risks to consider. One of them is share dilution. After Viking's shares soared following its clinical win, the company announced a capital raise that included issuing new shares. This move was hardly surprising. Clinical-stage biotech companies that generate no revenue and are consistently unprofitable have only so many options to raise funds.

But investors should keep that in mind: there could be more dilutive funding rounds in the future following clinical trial successes. Also, the weight-loss market will become increasingly competitive in the coming years. And finally, Viking has yet to post excellent results for its leading candidate in a Phase 3 clinical trial. And if data from its ongoing late-stage studies fall short of expectations, the stock will fall off a cliff and will have a lot of trouble recovering. The bottom line: Viking Therapeutics is a risky stock.

The company could deliver market-beating returns over the next five years if it establishes itself as a notable player in the anti-obesity space, but there is also a very real possibility that it will destroy shareholders' wealth over this period. Invest accordingly.

Prosper Junior Bakiny has positions in Eli Lilly, Novo Nordisk, and Viking Therapeutics. 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.