Vertex Just Paid $10 Billion for Crinetics. Here's Why Viking Therapeutics Could Be the Next Big Pharma Takeover Target

This has been an active year in the mergers-and-acquisitions landscape across the biopharmaceutical industry. One of the more notable deals was Vertex Pharmaceuticals' acquisition of Crinetics Pharmaceuticals for $10 billion in cash (the transaction hasn't closed yet). This is the largest acquisition in Vertex Pharmaceuticals' history, and it will enable the biotech giant to gain several promising pipeline candidates in endocrinology. Could there be an even more massive acquisition on the horizon in the industry? It's hard to say for sure, but if there is, Viking Therapeutics (NASDAQ: VKTX) may be the acquisition target.

The rapidly growing weight loss market

According to the U.S. Centers for Disease Control and Prevention, a little over 70% of adults in the country are overweight or obese. Excess weight is linked to a range of serious health problems, including diabetes, heart disease, and many others. Recent breakthroughs are helping address the issue. Anti-obesity medicines are allowing patients to lose weight and reduce their risk of developing a range of conditions. But this market is still in its early stages and is projected to expand rapidly over the next decade. According to some estimates, it will be worth $190 billion in 2035, compared to just $79 billion last year.

No wonder, then, that many pharmaceutical giants are looking to dip their toes in this space. But discovering and developing brand-new therapies from scratch in any field is expensive and time-consuming. That's why well-established drugmakers often prefer to acquire companies with promising mid and late-stage assets. That's where Viking Therapeutics comes in. The company's portfolio includes subcutaneous VK2735, currently in phase 3 clinical trials, as well as an oral version of the drug, which should begin late-stage studies by year-end. Further, Viking Therapeutics developed VK3019, another weight-loss candidate, which recently started phase 1 clinical trials.

Viking Therapeutics has one of the more impressive weight-loss pipelines among mid-cap biotechs, making it a great target for a pharmaceutical leader looking to fast-track the process and land some highly promising anti-obesity pipeline candidates overnight. Viking Therapeutics' phase 3 studies for VK2735 are expected to be completed by late 2027. If the results are very strong, the company's shares will soar, making it a much more expensive acquisition target. So, if any pharmaceutical giant is going to make a move, it probably will be before then.

Is the stock a buy?

Investors shouldn't purchase Viking Therapeutics' shares expecting the company to be acquired at a premium. Although it could happen, it's difficult to predict these things. But is the stock attractive based on its potential in the anti-obesity market? On the one hand, VK2735 could carve out a solid niche. It is a dual GLP-1 and GIP agonist, meaning it mimics the actions of these two gut hormones, which control satiety and insulin release. This mechanism of action is one of the reasons behind the success of Eli Lilly's Zepbound, which is currently the world's best-selling weight-loss therapy.

In phase 2 studies, subcutaneous VK2735 posted a mean, placebo-adjusted weight loss of up to 13.1% in just 13 weeks. While it's always hard to compare across studies, it's worth noting that in a phase 3 trial, Zepbound posted a mean weight loss of 20.2% in 72 weeks. The rate of weight loss is fastest in the early stages, so VK2735's strong results in a 13-week study do not necessarily mean it will perform better than Zepbound in longer clinical trials. Still, Viking Therapeutics' leading candidate looks very strong.

Analysts are also bullish on the stock. The company's average price target (according to Yahoo! Finance) is $92.58, implying an upside of about 181% from current levels. That said, Viking Therapeutics is racing toward a binary event -- phase 3 data readouts for its leading program -- that could make or break its prospects. If the data do not meet the market's standards, the stock will fall off a cliff, and it will be difficult for the biotech to recover. This makes the stock rather risky. Investors should keep that in mind before initiating a position.

Prosper Junior Bakiny has positions in Eli Lilly, Vertex Pharmaceuticals, and Viking Therapeutics. The Motley Fool has positions in and recommends Eli Lilly and Vertex Pharmaceuticals. The Motley Fool recommends Viking Therapeutics. The Motley Fool has a disclosure policy.