Viking Therapeutics (VKTX 4.30%) didn't exactly capture investors' hearts in the final month of 2024. The biotech company's share price eroded by 24% in December, primarily on the back of a rival's aggressive move into a potentially very lucrative segment of the pharmaceutical market.

Intensifying competition

That rival is a large and determined one: global pharmaceutical incumbent Merck (MRK -0.03%).

In mid-December, Merck announced it had entered into a licensing deal with China-based biotech Hansoh Pharma for that company's investigational weight-loss drug. If developed successfully, the drug, labeled HS-10535, would surely pose a serious threat to Viking's No. 1 pipeline program, VK2735. This, too, is an obesity drug; it has tested well in clinical trials and is relatively advanced in its development process.

It is also an orally administered treatment, giving it an advantage over competing products on the American market that are already Food and Drug Administration (FDA)-approved for the disorder. These are Novo Nordisk's Wegovy and Eli Lilly's Zepbound, both of which are delivered via injection.

Merck's arrangement with Hansoh gives the former company exclusive global licensing rights to HS-10535, which is currently in development. Merck has already committed quite significantly to this, signing on to a $112 million up-front payment in the deal. The company has also agreed to pay its Chinese partner as much as $1.9 billion in milestone payments and royalties, assuming, of course, that the drug is ultimately brought to market.

The stakes are high in the weight-loss game. With only two GLP-1 drugs approved specifically for weight loss in the U.S., the market is still wide open. Meanwhile, such drugs are enjoying white-hot popularity in a country notable for its high rates of obesity. Americans love the idea of being able to jettison diet and exercise regimes in favor of simply taking a drug to shed pounds. So, demand is currently very strong and should remain so.

A Viking shouldn't surrender

While Viking investors are right to be concerned with Merck's move -- the company is large, powerful, and obviously has a plan -- I wouldn't be ready to throw in the towel just yet. HS-10535 still has some distance to go in its development cycle, and there's no telling how efficacious it'll ultimately prove to be.

VK2735, then, seems like a better bet to make it to the hallowed commercialization stage. Given that it's an oral treatment rather than an injectible, it's sure to be a go-to treatment from the jump.