Viking Therapeutics Could Muscle Into the Weight Loss Market
Here's why I see this biotech as a potential rising star in the diet-drug game.
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For the most part, the competition for GLP-1 weight loss/diabetes treatment market-share has been a two-horse race. You have American pharmaceutical giant Eli Lilly LLY and Lilly's Danish competitor, Novo Nordisk NVO.
But I'm starting see another opportunity in the market: Viking Therapeutics VKTX.
Before I get to that, let's look at the two leaders in the game right now. LLY had been a runaway freight train until July and is still trading close enough to those highs after some back and forth. Novo's ADRs have been trading sideways since early March and traded significantly lower (-5.46%) on Friday.
What happened Friday? Novo Nordisk reported Phase 2b clinical data on weight loss candidate monlunabant that disappointed investors. Monlunabant, for those who just shrugged their shoulders, is a small molecule oral cannabinoid receptor inverse agonist. Results did show that all doses led to statistically significant reductions in weight compared to those taking a placebo. That said, the clinical study showed weight loss of about 6% at 16 weeks. That was considerably behind the 8% loss over 16 weeks reported for Eli Lilly's leading oral GLP-1 candidate, Orforglipron. The performance was also less promising than what Novo had suggested going into the study.
The Novo study also showed some gastrointestinal side effects, though most were mild to moderate and dependent upon dosage. Some other side effects seen more often in monlunabant than in the placebo included anxiety, irritability and sleep problems. On top of the relative underperformance, these side effects did not serve to help the stock on Friday.
Competition for the obesity market is only going to intensify going forward, and the future is likely to be in an oral therapeutic, if one or more can be developed. Wegovy is Novo Nordisk's weight-loss brand name for the diabetes treatment known as Ozempic, while Zepbound is the weight-loss brand name for Lilly's diabetes treatment known as Mounjaro. These successful drugs are delivered to the patient in the form of weekly injections. Hence the demand for an oral alternative.
The Skinny on the Competition
The intensity level of the competition for a weight loss drug delivered in a safe and patient-friendly will be intense. Four other names are known to be either working on or in clinical trials, trying to develop an orally delivered weight loss drug. On Friday, Viking Therapeutics VKTX was up 3.4%, and Structure Therapeutics (Nasdaq:GPCR) was up 8.18% as the two appear to be closest to the "big two" in developing something potentially positive for this space.
Viking has the oral GLP-1/GIP agonist VK2735 in mid-stage clinical trials while Structure has the APJR agonist ANPA-0073 in an early clinical study. Two other names saw a negative reaction to the news on Friday. Terns Pharmaceuticals TERN was down 0.2% on Friday, despite having an oral GLP-1R agonist in early trials and Corbus Pharmaceuticals CRBP was simply crushed (-62.3%) as that company has been developing a weight loss drug considered to be similar to Novo's monlunabant.
More Headaches for Novo
Novo Nordisk CEO Lars Fruergaard Jorgensen will appear at 10 a.m. ET this Tuesday before a Senate committee at a hearing convened by Vermont Senator Bernie Sanders. Sanders has been investigating the prices for Ozempic and Wegovy. While Novo will be under the gun this week, all of big pharma will be under the microscope concerning drug prices, with those offering weight loss drugs under particular scrutiny as that's where the demand is at the moment.
The U.S. list price for Wegovy is $1,349.02 per month, while the list price for Lilly's Zepbound is $1,059.78 per month. According to Sen. Sanders, Wegovy costs the equivalent of $140 per month in Germany and the equivalent of $92 per month in the U.K. These prices may very well moderate as innovation and competition in the space increases. Additionally, it is known that pharmacy benefit managers have extracted rebates from the big two, and Lilly, for that matter, has launched a "starter dose" program making Zepbound available to patients without health insurance for $399 per month.
The Charts: NVO, LLY and VKTX
NVO has developed a relatively flat base that has been in place since March. Both the relative strength index and daily moving average convergence divergence indicators are weakening, while the stock prepares to test its 200-day simple moving average from the upside. NVO bulls need to see this line hold. NVO bears will point toward the stock's lumpy line of resistance throughout this basing period. It appears to be rounding out a completion of what could be a head and shoulder pattern. This would be a bearish development.
Readers will see that LLY, however, broke down and out from a lengthy upward sloping price channel in early July. Right now, relative strength is neutral, but the daily MACD is postured quite bearishly as the stock preps for a test of its 50-day simple moving average from above.
The stock does appear to have developed a double-top reversal pattern this summer that may have found some support on Novo's issues. The downside pivot is all the way down at $747, so that would be a downside target in its own right that would set up a test of the stock's 200-day simple moving average.
I would not suggest betting against Eli Lilly after the couple of years that this stock just had (that we took full advantage of). I would have a tough time paying 56-times for this stock right now. I need to be sure that the shares can break out of that double-top with the coming of significant competition likely on the way.
What we see in the VKTX chart is a very lengthy pennant hanging off of a flagpole that was developed back in February. Bull flags usually last a few days or a couple of weeks. Even pennants should not last this long, but that's what I think I am looking at. A closing pennant, which we have, often signals an explosive move in either direction.
That said, relative strength has been improving as has the daily MACD. All three components of that MACD are currently in positive territory. Viking doesn't make money yet, but if I had to get long one of these three names based on their charts, hands down, right now it would be Viking.
I may initiate with a small, long position later today or later this week, after my article is public information and after Novo goes before that Senate Committee for scrutiny and probably a grilling.
At the time of publication, Guilfoyle had no position in any security mentioned.
