Why I Think Viking Therapeutics Is an Asymmetric Growth Opportunity

Globe and Mail

2 days ago

Key Points
Wall Street's smartest money has quietly amassed over $150 million in bullish positions, with Goldman Sachs eliminating all downside hedges.
Despite trading near 52-week lows due to biotech industry headwinds, Viking's oral GLP-1 drug shows unprecedented tolerability that could revolutionize obesity treatment.
Upcoming phase 2 oral data expected in October or November 2025 represents a rare binary event where the market significantly undervalues the upside potential.
Most investors have written off biotech stocks as a graveyard of broken dreams. While artificial intelligence (AI) captures Wall Street's imagination, the biotech industry -- once the crown jewel of innovation -- has been left for dead.
But beneath the wreckage, Wall Street's sharpest funds are quietly positioning for what could be the most significant metabolic breakthrough in a generation.
A differentiated player in the GLP-1 gold rush
Viking Therapeutics (NASDAQ: VKTX) is developing VK2735, a dual GLP-1/GIP receptor agonist for obesity treatment. The company reported stellar phase 2 results in February 2024, showing 14.7% weight loss at 13 weeks with the injectable formulation.
But here's what makes Viking different: Its drug demonstrated unprecedented tolerability with a 13% discontinuation rate that was no higher than placebo -- a stark contrast to competing GLP-1 drugs.
In obesity treatment, tolerability isn't a luxury -- it's key to real-world adoption. Viking's breakthrough with VK2735 isn't just efficacy; it's safety. The drug's 13% discontinuation rate matched placebo -- unlike Wegovy and Zepbound, which see discontinuation rates typically five to 10 percentage points higher than their placebo groups. Tolerability indistinguishable from placebo could expand the entire obesity market -- not just capture share.
The obesity drug market is projected to reach $200 billion by 2030, yet current treatments face significant limitations. Novo Nordisk 's Wegovy and Eli Lilly 's Zepbound require weekly injections and cause severe gastrointestinal side effects in many patients. Viking's oral formulation, currently in phase 2 trials with data expected in the October-to-November time frame, could be the first pill to roughly match injectable efficacy without the tolerability issues.
Here's what Wall Street might be missing: Viking's superior tolerability profile doesn't just mean competing for market share -- it could lift the roof on the entire obesity category. With no greater discontinuation than placebo, VK2735 could dramatically expand the addressable market by reaching patients who currently avoid or quit treatment due to side effects. An effective, well-tolerated oral option could double or triple the number of patients seeking treatment.
The numbers tell a compelling story: Viking showed a near-perfect dose-response relationship, with tolerability no different than placebo -- something no other GLP-1 developer has achieved. Every major pharma has tried and failed to create an effective oral GLP-1, with Pfizer discontinuing its program due to safety issues and an exceptionally high discontinuation rate (> 50%). Viking appears to have cracked the code based on the early data, and Wall Street seems to know it (more on that later).
Why is the stock trading near 52-week lows?
Viking's stock has plummeted 64% from its 52-week high of $81.73 to around $27 as of July 2. This devastation reflects broader structural damage in the biotech space rather than company-specific issues. Since interest rates have flipped higher, biotech as a whole has been crushed, leaving a bad taste in investors' mouths.
The 2022 biotech collapse has created a vicious cycle. Great opportunities are no longer getting flagged for investors, as AI stocks dominate headlines and capture imaginations. Meanwhile, GLP-1 drugs have shown a mixed bag in clinical trials lately, suggesting to some that a top in efficacy and safety is near.
But I believe that's shortsighted thinking. VK2735 has shown a differentiated clinical profile, with tolerability nearly indistinguishable from placebo in early studies -- something no other GLP-1 has achieved. While it's far too early to declare victory, the data suggests Viking may have solved one of the key challenges that has plagued obesity drugs.
This widespread biotech pessimism has created the kind of mispricing sophisticated funds live for: quality assets trading at distressed valuations. It's the very definition of an asymmetric opportunity.
The institutional positioning tells a different story
While retail investors panic, institutional behavior reveals extreme confidence. Per the latest 13F filings, Balyasny Asset Management holds $71 million in bullish positions, up 542% from the previous quarter. Citadel owns $32 million, Susquehanna has $36 million, and Jane Street holds $17.5 million. Combined, these sophisticated quantitative funds have accumulated over $150 million in bullish positions.
More telling is what Goldman Sachs just did: It eliminated 100% of its put positions while increasing calls by 350%. When one of Wall Street's premier trading desks removes all downside protection, it's signaling extreme confidence in the outcome.
These institutions aren't speculating randomly -- they're arbitraging what they see as a massive market inefficiency. Their models likely show the same disconnect: a drug with tolerability on par with placebo, and a validated mechanism trading as if it has a 96.5% chance of complete failure. For quant funds that live and die by probabilities, this represents a rare mispricing opportunity.
The divergence between institutional longs and retail shorts has reached an extreme. Short interest just increased to 30% of float as of June 13, up from 26% the prior month -- even as the smart money accumulates massive call positions.
For context, 30% short interest is extraordinarily high for a clinical-stage biotech, putting Viking in the 99th percentile of U.S. equities for bearish bets. This sets the stage for a classic capitulation moment, where good news could ignite both fundamental revaluation and a violent short squeeze.
A manufacturing partner validates the opportunity
Manufacturing is the Achilles' heel of most small-cap biotechs. Viking solved this early. In March 2025, the company inked a $150 million manufacturing deal with CordenPharma -- one of the world's premier peptide contract development and manufacturing organizations (CDMOs) -- giving Viking turnkey capacity for 100 million autoinjectors and 1 billion tablets annually, without dilution or costly infrastructure builds.
This agreement removes a major overhang that has plagued other clinical-stage biotechs, as well as serves as a clear green flag that the broader market has curiously decided to ignore. After all, such an agreement would not have been signed without deep due diligence and extreme confidence in VK2735's clinical profile. Why? There is a tsunami of demand for GLP-1 manufacturing capacity right now.
The asymmetric setup ahead of oral data
The phase 2 oral data release expected in the fourth quarter of 2025 represents a rare asymmetric opportunity. Based on the dose-response curves from the four-week data showing 6.8% weight loss, the oral formulation could potentially approach injectable-like efficacy. The full 13-week phase 2 data will reveal how close the oral formulation can get to the 14.7% weight loss seen with the injectable.
At today's $3 billion market cap, Viking trades at a fraction of the value created by successful GLP-1 drugs. Eli Lilly has added over $300 billion in market value since Mounjaro's 2022 launch, while Novo Nordisk saw its valuation surge from under $200 billion to over $600 billion at its peak as Ozempic and Wegovy transformed the obesity market. Even with recent pullbacks, both companies have captured hundreds of billions in incremental value from their GLP-1 franchises alone.
The market's high bar for new entrants was evident when Amgen 's MariTide showed 20% weight loss but disappointed with 11% discontinuation rates in its phase 2 trial. When the data was released in November 2024, shares fell nearly 5% that day despite the solid efficacy. Yet Viking's parity with placebo appears to clear that bar with room to spare.
If Viking's oral drug approaches the injectable's efficacy, the stock could see immediate revaluation to $200 to $300 per share, with longer-term potential exceeding $500. At current levels, the market is implying just a 3.5% probability of success for VK2735.
That's absurd when you consider that metabolic drugs with positive phase 2 data typically have 45% to 50% success rates through approval. With VK2735's validated mechanism and placebo-like tolerability, a reasonable probability may range from 45% to 70% -- significantly above the market's implied odds. Even using just a 25% success rate -- below the industry average -- suggests the stock should trade above $100 right now.
At $27, the market is pricing Viking as a lottery ticket. The data says it's closer to loaded dice.
The risk-reward setup has convinced me to take a leveraged position through deep out-of-the-money call options -- admittedly a speculative position that could expire worthless. But with Viking having about $7.50 per share in cash, even equity investors have defined downside risk in a worst-case scenario. Add in 30% short interest providing squeeze fuel and institutional positioning at extreme levels, and the asymmetric opportunity becomes clear.
Time to look past the biotech wreckage
Key risks include potential safety issues emerging in larger trials, manufacturing scale-up challenges despite CordenPharma's support, and commercial headwinds such as payer reluctance to cover costly new obesity treatments. But the statistical improbability of VK2735's tolerability profile, combined with the manufacturing validation and institutional positioning, suggests the smart money sees something the broader market is missing.
My personal take on the maximum upside? If VK2735 secures oral GLP-1 leadership and achieves widespread commercial adoption, a strategic acquisition could command valuations approaching $750 per share within the decade -- though this remains a highly speculative scenario contingent on flawless execution. A lot has to happen between now and then to make this come to fruition. But the seed has been planted. VK2735 has a real shot at bending the curve on the obesity epidemic.
Markets move in cycles. "Returning is the motion of the Tao," as Lao Tzu wrote -- when one extreme is reached, movement toward the opposite begins. Biotech will rise again.
Viking offers investors a chance to front-run that rotation -- not by chasing speculative names, but by owning a promising asset with game-changing potential at what may prove to be generational lows. As biotech's cycle inevitably turns, those positioned early in assets like Viking may capture the steepest part of the revaluation curve.
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George Budwell has positions in Pfizer and Viking Therapeutics and has the following options: long January 2026 $55 calls on Viking Therapeutics, long January 2026 $60 calls on Viking Therapeutics, and long January 2027 $60 calls on Viking Therapeutics. The Motley Fool has positions in and recommends Amgen, Goldman Sachs Group, and Pfizer. The Motley Fool recommends Novo Nordisk and Viking Therapeutics. The Motley Fool has a disclosure policy.