Monday, 28 October 2024
by BD Banks
One of the biggest sensations fueling the healthcare space right now is the medication class of glucagon-like peptide-1 (GLP-1) agonists. Even if you aren’t familiar with the term “GLP-1,” you’ve probably heard of Ozempic and Wegovy. Both medications are GLP-1 agonists, used to treat diabetes and obesity, respectively.
These treatments have become blockbuster drugs for their maker, Novo Nordisk, and have helped fuel generous gains for investors in the stock. While Novo Nordisk currently dominates the GLP-1 industry, a number of other players are looking to enter the space.
One leading entrant is Viking Therapeutics (NASDAQ: VKTX). Below, I’ll break down where Viking stands in its pursuit of the weight loss market, and assess whether buying the stock could be like investing in Novo Nordisk at the beginning of the Ozempic revolution.
Viking has several drug candidates in its pipeline. But the one that investors seem most honed in on is VK2735 — a dual GLP-1 and GIP receptor agonist focused on treating obesity. As a dual agonist, VK2735 could wind up being a more optimal treatment for obesity and diabetes than single-pathway GLP-1 medicines such as Ozempic or Wegovy.
In late October, Viking announced that it will be meeting with the Food and Drug Administration (FDA) during the fourth quarter, about the proper steps and protocols to move VK2735 into a phase 3 clinical trial.
Image source: Getty Images.
Given the information above, you might think buying Viking stock now — prior to phase 3 trials — is a lucrative opportunity. However, there is quite a bit to consider besides anecdotal updates about VK2735.
So far in 2024, shares of Viking have rocketed by a whopping 323% — putting its market cap right around $8.8 billion. Considering that the company doesn’t generate revenue, it’s hard to justify this valuation.
On the bright side, I think Viking is in a pretty solid financial position.
At the end of the third quarter, it boasted $930 million of cash and equivalents on its balance sheet. Furthermore, the company has spent roughly $105 million in operating expenses through the first nine months of the year. This implies an annual run rate of approximately $140 million in spending on research and development (R&D) and other administrative expenses, suggesting that Viking has ample liquidity to continue funding its operations.
I see Viking Therapeutics as largely a speculative opportunity. While data from its clinical trials so far have been encouraging, there are still plenty of unknowns surrounding the phase 3 study.
Moreover, the price action in the stock throughout 2024 may suggest that it’s a little overbought. It’s hard to imagine a scenario in which upside from the potential approval of VK2735 isn’t baked into Viking shares to some degree.
While I think the company could be a disruptive player in the weight loss arena, Viking’s full potential is likely still years away. In the interim, I expect that Novo Nordisk will keep chugging along and remain a leader in diabetes treatment and chronic weight management.
Even if Viking does receive approval for its obesity candidate, there will be plenty of time to invest in the stock along the way as the company scales up.
To me, owning Viking shares requires a deep understanding of high-risk, high-opportunity stocks. I think most investors would be better off owning an established business such as Novo Nordisk, instead of a clinical-stage company like Viking Therapeutics.
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Adam Spatacco has positions in Novo Nordisk. The Motley Fool recommends Novo Nordisk. The Motley Fool has a disclosure policy.