Down 71%, Should You Buy the Dip on Viking Therapeutics Stock?

No one ever claimed investing in the biotech industry was a smooth ride, but for shareholders of Viking Therapeutics (NASDAQ: VKTX), the turbulence has been extremely challenging thus far. The stock is down 71% over the past year, amid ongoing uncertainties regarding the timeline for future commercialization of its clinical pipeline and the broader stock market sell-off.

Nevertheless, the company's prospects remain positive with its portfolio of therapeutic candidates covering metabolic and endocrine diseases. Progress toward regulatory approval with multiple data readouts expected later this year could be the catalyst for shares to rebound sharply.

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So, should you buy the dip in Viking Therapeutics now? Here's what you need to know.

Viking's disruptive opportunity

Viking Therapeutics is a clinical-stage biotech focused on treatments for conditions like obesity, type 2 diabetes, and rare diseases. While the company has not yet launched a product, its VK2735 candidate -- a dual agonist targeting glucagon-like peptide-1 (GLP-1) and glucose-dependent insulinotropic polypeptide (GIP) receptors -- achieved promising results in a Phase 2 study, demonstrating sustained weight loss in patients with obesity.

Compared to existing GLP-1 medications approved by the Food and Drug Administration (FDA) from biotech giants like Novo Nordisk and Eli Lilly, Viking's VK2735 could be a game changer in the field with several advantages identified from early data. Those include:

• Its novel dual-action approach covering GLP-1 and GIP receptors may provide a more comprehensive treatment for obesity and related conditions like diabetes by leveraging the complementary effects of both hormones.
• VK2735 offers flexibility with both injectable and oral pill formulations being developed, catering to different patient preferences.
• Clinical data shows rapid weight loss -- up to 15% in 13 weeks -- far outpacing Novo Nordisk's Wegovy's 15% weight loss baseline over 68 weeks.
• VK2735 exhibits favorable tolerability indicators, with mostly mild side effects and no reports of severe issues like gastroparesis, unlike other GLP-1 drugs.
• A monthly dosing option for VK2735's injectable form is being studied, enhancing convenience over weekly injections required by alternatives.

Viking's opportunity is significant. According to experts, the GLP-1 market is estimated to total $53 billion between both diabetes and obesity indications, and is projected to nearly triple by 2030 to $139 billion. The potential that phase 3 studies being initiated in the current second quarter confirm VK2735's best-in-class profile highlights the attraction of Viking as an investment.

The company's outlook is further diversified with separate programs. Viking's VK2809 candidate targets disorders like non-alcoholic steatohepatitis (NASH) while VK0214 addresses X-linked adrenoleukodystrophy (X-ALD), a rare disease affecting the nervous system. Other programs are also promising.

Image source: Getty Images.

A pivotal next 18 months

Viking is projecting confidence in VK2735's eventual FDA approval with the recent announcement of a multiyear manufacturing agreement with CordenPharma. The deal secures the annual supply for up to 100 million autoinjectors, 100 million vials and syringe products, and a capacity to produce over 1 billion oral tablets, positioning Viking for a large-scale commercial launch.

The good news is that the company benefits from a well-capitalized balance sheet, ending 2024 with $903 million in cash and zero debt. Management believes it has the resources needed through the completion of phase 3 trials for VK2735 in obesity.

However, significant uncertainties remain, including potential delays in trial timelines or regulatory hurdles, representing risks for investors to consider. The company still has a lot of work to do before ever launching its first product, which could be in late 2026 or into 2027, assuming all goes as planned.

There are also lingering questions about the competitive landscape. Even with the expected clinical benefits of VK2735, the market has become crowded with larger and more established players like Novo Nordisk and Eli Lilly moving forward with next-generation GLP-1s that would challenge Viking's blockbuster drug potential.

A cautiously bullish outlook

Viking Therapeutics could be on the verge of evolving from a clinical-stage contender into a disruptive force in the biotech industry. Recognizing the still speculative nature of the stock, I'm cautiously bullish and predict the share price will be trading higher by next year, emerging stronger from the near-term weakness. For investors who are confident that VK2735 will disrupt the GLP-1 market, a small position in the stock for a diversified portfolio could pay off in the long run.

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Dan Victor has no position in any of the stocks mentioned. The Motley Fool recommends Novo Nordisk and Viking Therapeutics. The Motley Fool has a disclosure policy.