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On Tuesday, Viking Therapeutics (NASDAQ: VKTX), a clinical-stage biotech specializing in treatments for metabolic diseases, saw its stock price surge by a staggering 121% in response to a clinical update for its mid-stage obesity candidate, VK2735. Over the past three years, this company’s shares have rocketed by more than 1,100%, making it one of the best-performing biotech stocks over this period.

However, it hasn’t been smooth sailing for Viking shareholders. Seven years after it went public in 2015, the company’s shares were trading for less than 27% of their IPO price, and a cloud of uncertainty loomed over its future. That’s when Viking struck gold with its weight loss drug candidate, VK2735.

A rocket taking flight.

Image Source: Getty Images.

An unexpected turn of events

This week’s clinical update for VK2735 showed that some trial participants experienced a nearly 15% weight reduction after just 13 weeks of treatment. While this mid-stage study wasn’t designed to pit the drug’s effectiveness against the market-leading drugs of Novo Nordisk (NYSE: NVO) and Eli Lilly (NYSE: LLY), Viking’s weight loss drug appears to have a clinical profile that could make it a formidable player in the space.

This is significant. Analysts predict the U.S. market for weight loss drugs could be valued between $50 billion and $100 billion by 2031. Novo Nordisk and Eli Lilly are expected to bag the lion’s share of that market, although Amgen is hoping to secure a sizable share with its injectable weight loss drug, MariTide.

Based on Viking’s latest clinical data, its candidate could disrupt the market, which positions the company as a potential takeover target. Yes, I’m hinting that Pfizer might step in with an offer, especially after its own setbacks in the weight loss field.

In other words, Viking stock might have even more room to run, possibly adding to its already remarkable gains over the past 36 months. But there’s a deeper investment lesson to be gleaned from this story.

A teachable moment

Investing can sometimes be a real headache. The market can stay irrational about a sector, industry, or a specific company for a long time. Meanwhile, other companies in similar businesses may soar. This can be a gut-wrenching experience if you’re invested in those companies that are underperforming, and one that might tempt you to sell your laggards and chase the latest hot stocks.

Viking’s journey serves as a warning about the dangers of abandoning your beliefs. When Viking’s shares were languishing a few years ago, I cautioned investors against bailing out. The company’s metabolic disease pipeline had some potential stars at the time, and VK2735 has certainly validated that thesis. However, I know investors who sold it near the bottom, incurring substantial losses in the process. Today, I suspect they deeply regret that decision.

Key takeaway

Keep in mind, attempting to time the markets is always a gamble, and it’s wise not to buy a stock with less than a five-year holding period in mind. In the biotech sector, it’s arguably better to stretch that time frame to at least 10 years due to the extended development and regulatory approval timelines for new drugs.

While such prolonged holding periods might seem over the top, the histories of Viking and numerous other biotech companies highlight the prudence of a long-term investment strategy, particularly in this field.

If the roller-coaster volatility of biotech stocks is too much for you as an investor to stomach, however, I’d suggest considering a thematic exchange-traded fund that follows the industry. This way, you can stay invested for the long term without having to grit your teeth when individual poor performers drag down your portfolio for weeks or months on end.

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George Budwell has positions in Pfizer. The Motley Fool has positions in and recommends Pfizer. The Motley Fool recommends Amgen and 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.

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