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Where Will Viking Therapeutics Be in 5 Years?

Motley Fool - Mon Oct 14, 4:32AM CDT

Five years ago, Viking Therapeutics(NASDAQ: VKTX) was an unknown, clinical-stage biotech. It hardly stood out in a sea of small drugmakers, and most of those never end up producing the kinds of results or performances investors want to see.

However, a lot has changed since: Viking still has no products on the market, but its leading candidates have made exciting clinical progress. That's why its shares soared this year.

There is still a lot of work ahead for this biotech, though. How will it evolve over the next half-decade? Let's try to figure it out.

Two possible scenarios

Viking hasn't started phase 3 studies on any of its candidate treatments yet, but the company's two leading programs have performed well in mid-stage clinical trials. The first, VK2735, is a potential dual GLP-1/GIP therapy for weight loss. The other, VK2809, is an investigational medicine for metabolic dysfunction-associated steatohepatitis (MASH). There is a large need in both markets.

The weight loss area is starting to hit its stride, thanks to incredibly popular medicines like Wegovy and Zepbound. According to some estimates, sales of weight loss drugs will hit $150 billion by the early 2030s -- up from $24 billion last year. Meanwhile, the U.S. Food and Drug Administration approved the first therapy for MASH earlier this year, even though in the U.S. alone, there are 9 million patients with MASH whose liver disease is considered "clinically significant."

So, one possible scenario for Viking Therapeutics in the next five years would work like this. The company runs phase 3 studies for VK2735 and VK2809, aces these trials, and successfully launches these products. Under this scenario, Viking would almost certainly deliver above-average results through this period.

Here's a second possibility: Viking could get acquired. Many large and well-established drugmakers want to break into the weight loss field. Outside of the leaders in this area, Eli Lilly and Novo Nordisk, most don't have pipeline candidates as promising as VK2735. Buying out Viking would be a quick way to get an exciting weight loss product and another for MASH.

It would be costly, though. Viking's stock shot up, literally and figuratively, after its positive phase 2 results earlier this year. The company's market cap is around $7.1 billion as of this writing. Any offer to acquire it soon had better come with a significant premium over its current value.

That means Viking Therapeutics shareholders could also be handsomely rewarded under this scenario.

It's important to hedge your bets

There are many other ways things could go. One of Viking's products could fail in phase 3 studies and never reach the market. Both could fail, or just not be as successful as the company expects -- typical risks of clinical-stage biotech companies.

In other words, while Viking could generate outsize returns, it could also end up practically worthless and bankrupt in five years. There's plenty of room between those two options, too.

It's hard to know exactly how things will evolve. What, then, should investors do? In my view, the correct approach would be a cautious one.

A relatively small investment in Viking right now could yield significant returns, and in case the worst happens, proceeding this way would limit your losses. By contrast, going all in right now could yield much larger returns, but could also lead to much more significant losses. There's no rule against increasing your position as Viking continues to record important clinical wins -- or doing the opposite if the company hits major roadblocks.

Here's the bottom line: If you're a long-term investor, you want to buy shares of solid businesses, ones you can be reasonably certain will perform well over the long run. Viking isn't at that stage yet, so you'd be better off hedging your bets.

If you're more cautious, you might opt to stay away from the stock altogether because it still looks too risky. It's an understandable sentiment, but you still might find it worthwhile to keep an eye on Viking Therapeutics.

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Prosper Junior Bakiny has no position in any of the stocks mentioned. The Motley Fool recommends Novo Nordisk. The Motley Fool has a disclosure policy.