Viking Therapeutics (NASDAQ: VKTX) and Summit Therapeutics (NASDAQ: SMMT) are both up-and-coming biotechs with no sales revenue, plenty of cash in the bank, big catalysts on the horizon, and pipeline strategies that could place them in major markets relatively soon.
That makes them more appealing than most biotech companies out there. It also makes deciding which one is worth an investment of around $1,500 a bit complicated. Let's shed some light on this issue by analyzing both stocks and seeing which might go to higher heights over the long term.
The case for Viking
Viking is about to enter the home stretch in its bid to develop a therapy to treat obesity. Its lead candidate, VK2735, will soon enter its phase 3 clinical trials to test its injectable formulation, and it'll also soon start phase 2 trials for its oral formulation. All the data the company has published so far suggests that its candidate is fairly powerful, as well as fairly tolerable for patients.
If either of those programs get approved for sale within the next couple of years, it'll deliver tidy returns to anyone who buys the stock today.
Per Morgan Stanley Research, the market for anti-obesity medicines will grow to reach a size of around $105 billion annually by 2030. Right now, the market is, for the most part, split by incumbents Eli Lilly and Novo Nordisk, but that's likely to change over the coming years thanks to a huge number of biopharma businesses like Viking scrambling to get their clinical trials wrapped up and their candidates approved. It won't take much of a share of that market for this biotech to proportionally expand by a vast amount, as it's currently bringing in zero.
But this biotech isn't under any financial pressure. As of Q2, it had $942 million of cash, equivalents, and short-term investments. In the same quarter, its total operating expenses, including research and development (R&D) costs, were just over $34 million. So it's safe to say that it has enough money to run its late-stage trials of VK2735 without dipping into any additional financing, which is bullish.
The bull thesis for Summit
Summit's objective is to commercialize its two late-stage programs that treat certain subsets of non-small cell lung cancer (NSCLC). Both of its trials are testing a biologic drug called ivonescimab, which it is licensing from a Chinese biotech called Akesobio. That company is currently investigating ivonescimab in a total of 19 different clinical-stage programs for NSCLC and a few other cancers, and it might be willing to license the rights for those other indications to Summit someday as well.
Thus, while Summit doesn't have an R&D pipeline of its own creations, it still probably has the opportunity to commercialize multiple programs that its collaborator advanced through the highly risky early stages of the clinical trials process.
According to a report by Credence Research, the market for drugs that treat NSCLC will reach a size of around $26 billion in annual sales by 2032. Today, the market is only worth roughly $11.5 billion, split between several different types of treatment, each of which has multiple medicines for clinicians to choose from. So Summit's candidate would need to have an edge in efficacy to find a niche in the market. Based on its clinical data so far, ivonescimab may indeed lead to better survival outcomes compared to the standard of care.
The first two programs it licensed could hit the market within the next three or four years if everything goes as planned; one of them just got a Fast Track designation from the Food and Drug Administration (FDA), and recruiting for the phase 3 trial is now complete. As the business just raised $235 million in gross proceeds from a group of biopharma and institutional investors, on top of the $326 million in cash, equivalents, and short-term investments it reported in Q2, it has more than enough capital to bring its most advanced programs to market, provided the clinical trials have the desired outcomes.
Go for the smaller company chasing the larger market
Between Viking Therapeutics and Summit Therapeutics, investing $1,500 in Viking makes more sense right now, though it is a bit riskier, as it doesn't have a collaborator like Akesobio to pave the way with early- and mid-stage clinical trials.
If it can commercialize an anti-obesity medicine that wins it a stake of even 10% of the market, it'll be rolling in cash simply as a result of how massive the weight loss drug market is. And, as it performs its R&D internally, it can credibly pursue further development of its commercialized candidates to refine them and squeeze out even more money later on.
While Summit would also be a winning investment if it succeeds in getting ivonescimab commercialized for a few different indications within NSCLC, the total addressable market size is much smaller, so it'd need a proportionally bigger market share to grow by an equivalent amount to Viking. And the market for NSCLC interventions is already fairly crowded, so attaining the larger share would be difficult. Finally, the company may have trouble building on its successes if it can commercialize a medicine, as it'll still be reliant on Akesobio's pipeline strategy for licensing opportunities if it continues with its current approach.
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Alex Carchidi has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Summit Therapeutics. The Motley Fool recommends Novo Nordisk. The Motley Fool has a disclosure policy.
