Investing in biotech companies, especially relatively small ones, can be a double-edged sword. Their shares often soar on strong clinical trial or regulatory news, but they can lose much of their value overnight if a study's results don't go their way. That makes many biotech stocks somewhat risky investments, but some could deliver excellent results for those who can stomach the risk.
Two biotech companies whose shares could gain significant traction in the months and years ahead are Viking Therapeutics(NASDAQ: VKTX) and Sarepta Therapeutics(NASDAQ: SRPT).
1. Viking Therapeutics
Viking Therapeutics is a clinical-stage biotech whose stock rose significantly this year. The drugmaker owes that run-up to its leading candidate, VK2735, a potential GLP-1 weight loss therapy that produced strong results in a phase 2 study. At least two scenarios could lead to Viking's shares soaring even more in the coming months and years.
The first scenario involves Viking Therapeutics advancing VK2735 to late-stage studies and the medicine proving safe and effective. The biotech could then get a foothold in the fast-growing weight loss market. It's hard to come up with accurate estimates years before a drug might hit the market, but William Blair analyst Andy Hsieh has projected that VK2735 could generate about $21.6 billion in annual sales at its peak. If this prediction is anywhere close to the truth, Viking's shares could maintain their momentum for a while. The stock could also skyrocket if the company becomes an acquisition target.
Many prominent drugmakers are racing to join the lucrative market for effective new weight loss treatments. Yet few have produced the kinds of clinical trial results this mid-cap company has. Buying out Viking Therapeutics would be a quick way for one of them to acquire a promising pipeline candidate in this niche and the team that developed it.
Viking is also working on an oral version of VK2735. And elsewhere in its pipeline, a phase 2 clinical trial of VK2809 produced positive results as a potential therapy for metabolic dysfunction-associated steatohepatitis (MASH), another condition with a high unmet need. The Food and Drug Administration (FDA) approved the first MASH therapy earlier this year, but there is room in the marketplace for more.
If Viking Therapeutics can make steady progress with its leading candidates, the stock could produce further outsized returns. However, this biotech stock is somewhat risky: If VK2735's clinical results fail to impress, its share price could fall off a cliff. Invest accordingly.
2. Sarepta Therapeutics
Sarepta Therapeutics specializes in developing medicines for Duchenne muscular dystrophy, a rare, pediatric, progressive neuromuscular disorder.
The company's most important product is Elevidys, a gene therapy for Duchenne muscular dystrophy. Elevidys recently earned traditional FDA approval for ambulatory patients and accelerated approval for non-ambulatory patients. This means that Sarepta Therapeutics will have to prove its efficacy in non-ambulatory patients in a post-marketing study to get the full blessing of regulators.
So far, Elevidys is performing well and helping Sarepta deliver strong results. In the second quarter, its total revenue increased by 39% year over year to $362.9 million. Earnings per share of $0.07 were much better than its loss per share of $0.27 in the prior-year period. The company's shares have performed better than the broader market so far in 2024, but things could get even better if it does earn full approval for Elevidys for non-ambulatory Duchenne muscular dystrophy patients. Elevidys is already contributing significantly to strong financial results.
But this regulatory win could improve things. It's also worth noting that Sarepta is looking to diversify its lineup. All four of its approved therapies treat Duchenne muscular dystrophy, but in January it started a phase 3 study for a potential therapy for Limb-Girdle muscular dystrophy. Overall, Sarepta Therapeutics has more than 40 candidates for conditions across the rare disease spectrum -- not bad for a biotech worth just under $13 billion.
The company's shares could deliver above-average returns if it keeps developing innovative therapies for diseases with high unmet needs.
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Prosper Junior Bakiny has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.