Viking Therapeutics Faces Uncertain Future as Stock Prices Decline

The buzz around Viking Therapeutics (NASDAQ: VKTX) has faded recently. In the past six months, shares have dropped by over 40%. Many investors hoped a larger healthcare firm would buy Viking for its potential GLP-1 treatment, VK2735, but that acquisition seems unlikely.

As competition in the GLP-1 market increases, investor enthusiasm may be waning. Is the decline in Viking’s valuation a sign of a brittle market, or can the company rebound with future successes?

Promising Treatment Faces Tough Trials

Viking’s stock saw a surge early last year when promising data from a phase 2 clinical trial for VK2735 emerged, showing that the injectable could help users lose nearly 15% of their body weight in just 13 weeks. The company is also developing an oral formulation, though it is still in earlier stages.

Investors were initially excited about the revenue prospects linked to VK2735, as having a leading GLP-1 drug could yield billions. However, it’s crucial to remember that VK2735 needs to demonstrate its effectiveness in phase 3 trials before receiving FDA approval. These trials are set to begin in the first half of this year, but the timeline for results and approval can stretch significantly.

Company’s Funding Challenges Grow

There is rising concern among investors about the funding challenges Viking may face. Without a buyer, it’s likely the company must finance the development and marketing of VK2735 on its own, should it get approved.

Viking lacks a steady revenue stream, which means it will continue to consume cash. This situation raises the likelihood of share offerings, especially as they move to larger, costlier trials. Over the years, the company’s share count has increased, an endeavor that generally puts downward pressure on stock prices.

VKTX Shares Outstanding data by YCharts

New shares entering the market can diminish stock value. Positive trial outcomes for VK2735 could provide a much-needed boost to investor confidence, leaving the stock’s future tightly woven to the drug’s success or failure.

Should You Invest in Viking Now?

Viking Therapeutics has seen significant stock price declines recently, with a market capitalization of $3.5 billion despite having no approved products. This elevated valuation carries considerable risks. Even as the stock prices drop, the possibility of remaining downside at the current valuation requires caution from potential investors.

For those who can accept high risk, this might still be a worthwhile investment, but one should prepare for potential volatility. Alternatively, numerous other growth stocks offer lower-risk opportunities.

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David Jagielski has no position in any of the stocks mentioned. The Motley Fool recommends Viking Therapeutics. For further details, please refer to the Motley Fool’s disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.