The much-feted biotech Viking Therapeutics (NASDAQ: VKTX) is aiming for Novo Nordisk's (NYSE: NVO) cash cow, the market for weight loss drugs. If its ambitions are fulfilled, it has a shot at becoming as large as its big pharma rival.
To see why this possibility is more than a pipe dream, let's start by making some quick calculations. That will help us to understand Viking's chances of becoming the next Novo Nordisk, based on how much it needs to grow from where it is now.
Here's the napkin math
There are a couple of factors that are working in Viking's favor. As a pre-revenue biotech stock, its value is largely determined by the quality of its clinical trial data, the cash it has on hand, and the hype pertaining to its development programs (assuming there is any).
As the company has $942.2 million in cash, equivalents, and short-term investments right now, it's well-funded. It's developing a weight loss drug candidate that's soon to enter phase 3 trials, and the safety and efficacy data have been great so far. So great, in fact, that investors have bid its shares up to a valuation far beyond what would normally be expected for a biotech with no products on the market and no revenue from collaborations.
Viking's market cap is currently $6.5 billion, whereas Novo Nordisk's is $580.9 billion, which suggests that Viking would need to grow 8,837% larger to be of equal size. Aside from the sizable gap between those two market caps, there's also a massive gap between the level of prestige and trust that Novo Nordisk commands as one of the world's leading pharmaceutical businesses, and the comparatively humble status of Viking. But there's another factor in play.
While estimates vary about the ultimate size of the market for weight loss drugs, a common figure tossed around is that it'll be worth roughly $100 billion by 2030. Presently, the market for those medicines is effectively split between Novo Nordisk and its chief competitor there, Eli Lilly. By 2030, it's reasonable to assume that at least three other companies -- and possibly many more -- will have a foothold.
Let's assume that the five competitors each hold an equal share of the market. Assuming Viking is one of the competitors, and it probably will be based on its results so far, that'd put its annual haul at around $20 billion. It's unclear how big of a company that'd make it, as the valuation multiples of 2030 are unlikely to be similar to those of today.
Novo Nordisk's trailing-12-month (TTM) sales are around $37.4 billion, but that's split across an entire portfolio of medicines. And Viking probably won't stop at developing more medicines if it gets its lead candidate out the door and onto the market. With the lengthy drug development cycle now averaging around 10 years, it's a toss-up as to whether any of Viking's new programs would be commercialized by the date we're using. But it's possible that one or more of its existing pipeline programs in early- or mid-stage clinical trials would be approved by then.
Therefore, in principle, at the start of the next decade it's conceivable that Viking's top line would be in the ballpark of Novo Nordisk's revenue today, albeit at the lower range of what you might consider to be in the same group of companies.
It'll be a marathon, but it's possible
Built into the model above are a lot of assumptions and expectations.
Aside from supposing that its therapy gets approved for sale at all, the biggest is the assumption that Viking Therapeutics will be able to consistently execute with its manufacturing, sales, and distribution organizations so that its therapy finds the largest possible slice of the addressable market. Those operational capabilities are, as yet, totally untested.
Nonetheless, it has a lot of cash on hand, and a lucrative prize waiting just over the horizon. That means both that the biotech has enough resources to falter in its commercialization efforts a few times before it has financial problems, and that its motivation to succeed is likely to be very high.
Viking also is unlikely to stop developing new programs, either in obesity care or in another area, just because it experiences a taste of success with its lead program. There's always room to improve on existing medicines, and typically in a way that's meaningful to patients, clinicians, and investors.
All of this is to say that if Viking is going to become the next Novo Nordisk, it will take years, as well as a target market that balloons into a much larger size than it is today. But if it happens, the first evidence of its ascent won't take much longer to appear.
Keep an eye on the company's late-stage clinical trial data over the next year or so. If its lead program for weight loss continues to look like a sizzler, the odds are good that it'll be well on its way to becoming a juggernaut in cardiometabolic medicine.
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Alex Carchidi has no position in any of the stocks mentioned. The Motley Fool recommends Novo Nordisk. The Motley Fool has a 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.
