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Over the last decade, the pharma sector has undergone significant restructuring. On the upside, big data, machine learning, and predictive analytics have streamlined drug pipelines, enabling greater technology fragmentation into new drug product cycles.

According to McKinsey & Company, the mRNA vaccine tech alone expanded from 11% to 21% of the development pipeline beyond C19. At the same time, GLP-1 drugs reshaped obesity treatment along with gene therapies for rare diseases. Moving forward, AI-powered automation is expected to cut process timelines by 60% – 70%, per PwC analysis.

On the downside, the pharma landscape has become more competitive with higher PI-PIII trial spending, especially across blood, cancer, and infections sectors. Inflation and supply chain problems further impacted profit margins, exacerbated by the STEM labor shortage. According to a CBRE report 2022, workers from life sciences research greatly outpaced all other US occupations in the last two decades, at 79% vs 8%, respectively.

Lastly, the Inflation Reduction Act provision allowing Medicare to negotiate drug prices placed pressure on how biotech companies value drug returns. With all these trials, relative newcomer Viking Therapeutics (VKTX) has been the most performant biopharma stock in 2024 at 244% YTD gains. In contrast, pharma giant Merck (MRK) has flatlined at 1.2% YTD returns.

But which one is more prospective for the long haul?

Viking Therapeutics (Nasdaq: VKTX)

Specializing in metabolic and endocrine disorders, this San Diego clinical-stage firm aims to tackle Novo Nordisk and Eli Lilly. Of all medical conditions, it is difficult to find one that is more debilitating than obesity, triggering not only other conditions but greatly exacerbating absenteeism and presenteeism in workplace environments. 

Viking’s leading candidate to tackle this massive problem, which affects one in three US adults, is VK2735. After completing the Phase 2 VENTURE trial, which was double-blind, placebo-controlled, and randomized, the dual GLP-1/GIP agonist showed a 14% body weight reduction after 13 weeks. 

With a favorable safety profile, an oral version of VK2735 is currently in Phase 1 trial. Outside of obesity, Viking has VK2809 for fatty liver disease NASH (nonalcoholic steatohepatitis) in Phase 2b and VK0214 for rare genetic disorder X-linked adrenoleukodystrophy (X-ALD) in Phase 1b.

Of the four drugs, VK2735 is the company’s main valuation driver. This is not surprising given the total addressable market (TAM) for anti-obesity medications (AOMs) of up to $100 billion by 2030 (~16x), according to Goldman Sachs. Conversely, VKTX stock presents investors with a high reward, high risk exposure.

But, given the fact that VK2735 exploits the same hormonal mechanism as found in Novo Nordisk and Eli Lilly AOMs, it could be argued that the risk is minimal. This will be determined in the Phase 3 results.

Presently priced at $62.42, VKTX stock is still closer to its 52-week average of $40.09 than to its 52-week high of $99.41 per share. Based on 9 analyst inputs aggregated by Nasdaq, the average VKTX price target is $113.22 per share. With $90 as the low estimate, this makes VKTX a compelling case for exposure entry.

Merck & Company, Inc. (Nasdaq: MRK)

Although stock performance was lacking, this global pharmaceutical company had a productive year. Merck acquired Abceutics, a pre-clinical stage startup that improves the safety and efficacy of antibody-drug conjugates, for $208 million.

A month prior, in March, Merck acquired Harpoon Therapeutics to enhance its oncology pipeline worth $680 million. In July, the acquisition spree continued to EyeBio worth $3 billion, tackling diabetic macular edema and neovascular age-related macular degeneration. Lastly, Merck bought Elanco’s Aqua Business the same month for its Animal Health division and new-gen DNA-based vaccines.

These acquisitions paint a clear picture of Merck’s expansion and diversification. In Q2 earnings, the pharma giant reported $16.1 billion sales, up 7% from the year-ago quarter. Cancer-treating KEYTRUDA was responsible for the bulk of the revenue of $7.3 billion, up 21% notwithstanding foreign exchange impact. 

Merck raised 2024 outlook to $63.4 – $64.4 billion sales range. Although Merck is yet to deliver its own AOM, it has a wide portfolio of drugs covering all major sectors. It is also notable that even without its own AOM, Merck can count on the rapid rise of common cancers. For 2024 alone, the American Cancer Society projected 2 million new cancer cases and 611k cancer deaths.

Presently priced at $114.57 per share, MRK stock is down 12.65% over the last three months, or up 1.2% YTD. Against the 52-week average of $117.73, the average MRK price target is $143.45. With the low estimate of $125 above the current price level, MRK also presents an enticing exposure but with a much wider pharma moat. 

With a market share of 11.14% relative to its competitors as of Q2 2024, Merck only falls behind Johnson and Johnson (15.43%) and Procter and Gamble (14.98%).

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