Investing in biotech companies, particularly those that have yet to achieve profitability, can be challenging and high-risk.

The early stages of research and development require significant funding, typically with little to no revenue to show for it.

Furthermore, the drug development process is highly regulated and requires multiple stages of testing before a drug can even be considered for approval.

It starts with preclinical trials, where the drug is tested on animals or in labs, followed by several phases of human trials.

Each phase is designed to assess the safety, efficacy, and optimal dosage of the drug, with each subsequent phase involving more participants and larger trials.

Even if a drug passes all these hurdles, it still must be approved by regulatory bodies like the U.S. Food and Drug Administration (FDA), which can be a lengthy and complex process.

For investors, the potential rewards are enormous if a biotech company manages to bring a successful drug to market.

However, the risks are equally substantial, as many drugs fail at various stages of development, leading to sunk costs and a collapsing share price.

With that in mind, when a biotech company shows signs of being on the cusp of a major breakthrough, it can be an exciting and pivotal moment for both the company and its investors.

We may be witnessing one such moment right now with Skye Bioscience (SKYE).

The weight-loss drug market is on the verge of unprecedented growth as pharmaceutical companies race to address the worsening worldwide obesity epidemic.

Valued at over $24 billion in 2023, the market is projected to balloon to $130 billion or more by 2030 according to Goldman Sachs.

This reflects both rising obesity rates, with over 1 billion adults classified as obese globally according to the World Health Organization (WHO), as well as increasing demand from patients and physicians for more effective long-term treatment options.

Weight-loss drugs represent one of the largest opportunities for pharmaceutical innovation and new product development over the coming decade. The first generation of anti-obesity medications like orlistat provided underwhelming efficacy and tolerability.

However, new classes of therapies like GLP-1 receptor agonists have demonstrated up to 20% weight loss maintenance in clinical trials when used alongside lifestyle modification.

As physicians and patients gain more experience with these novel mechanisms, weight-loss prescriptions, and the overall market are set to explode.

Skye recently made headlines when it reported promising data for its weight-loss drug candidate, Nimacimab.

Nimacimab, Skye’s monoclonal antibody targeting the CB1 receptor, showed no neuropsychiatric adverse events during its Phase 1 trial.

This is a crucial advantage, as other weight-loss drugs in development, such as Novo Nordisk’s Monlunabant, have shown side effects like anxiety, irritability, and gastrointestinal issues, which can limit their appeal to both regulators and consumers.

The market responded favorably to this news, with Skye’s shares rallying 22% following the announcement.

The potential for a safer weight-loss drug is significant, particularly in a market where existing treatments often come with a range of side effects.

Skye is currently conducting a Phase 2 study to investigate the safety and efficacy of Nimacimab further, as well as its potential when combined with a GLP-1 receptor agonist, such as Novo Nordisk’s Wegovy.

The combination of these two mechanisms, targeting both the CB1 and GLP-1 pathways, could offer a more effective treatment for obesity with fewer side effects.

If this leads to a successful drug that is used by the masses, the company may benefit from that for years, leading to a significantly higher stock price.

Best regards,

Joel Litman & Rob Spivey
Chief Investment Strategist &
Director of Research
at Valens Research

This analysis of Skye Bioscience (SKYE)’s credit outlook is the same type of analysis that powers our macro research detailed in the member-exclusive FA Alpha Pulse.