Viking Therapeutics (NASDAQ: VKTX) stock jumped 69% yesterday on news about Phase 1 testing of their weight loss treatment, VK2735. Given the excitement in the market more generally about the new existence of weight loss drugs that really, actually, work we might think this is great. But it's possibly worth tempering our excitement for two distinct reasons.
The first is that these are Phase I tests. That means we're still a number of years away from any possible Food and Drug Administration approval and therefore the ability to market. Yes, obviously we all know that drug candidates take up to a decade to flow through that FDA system and good results at one stage or another are indeed valuation points. But there's still considerable risk attached to a drug at this point in the process. Not only does Viking have to go on to prove safety, but also there should be at least some variation of VK2735 being better than other alternative treatments for the same problem. The FDA approves upon both efficacy and safety grounds after all.
Viking Therapeutics share price from Yahoo
That jump could be maintained, given the valuation event of those Phase I trials. It's also possible that the excitement fades away as it sinks in quite how far from market they still are. It's also worth considering that VXTX is already 400% up on a 12 month basis. That might be enough for now.
But there's another reason to be a little cautious here. Which is that this is only one of a new class of drugs being developed across the industry. We see that certain ones already on the market - originally developed for diabetes treatment - do work. Which is greatand will be most profitable. But the more of that class of drugs get authorised the smaller the market is for each new entrant. Further, the less of a premium it is possible to charge for each new entrant. That's just how competitive markets work.
Normally, with a new drug we see exclusivity backed up by a patent or several. This doesn't quite apply when it's a whole new class of drugs coming to market around the same time. There really are times when a technology simply clicks (what we can call “steam engine time”) for many different suppliers and producers at the same time. Such markets tend to have many, many bankruptcies among those would be suppliers.
The considered opinion about Viking is probably that this is all very interesting, the current share price might be reasonable, but it's really, really, early in the whole process to be sure about it.
