- Driven by valuation concerns and underperforming returns among top AI stocks, investors are shifting capital towards the biotech sector, which boasts stronger market returns, a streamlined FDA approval process and high-value M&A activity.
- Unlike AI’s uncertain ROI, biotech demand is anchored by proven, high-impact innovations, including precision therapies for genetic, metabolic and pulmonary conditions.
- We delve into three biotech stocks that exemplify the sector’s potential, including Viking Therapeutics, Design Therapeutics and Liquidia.
Artificial intelligence (AI), now firmly embedded into the fabric of everyday life, is nevertheless not immune to the market cycle, as evidenced by the tanking returns of AI stocks as of late.
We see this in the Magnificent Seven, whose 9.8 per cent return year-over-year (YoY), as measured by the Roundhill Magnificent Seven ETF (AMEX:MAGS), is less than half of the total US stock market, which has returned 19.94 per cent YoY, as measured by the Vanguard US Total Market Index ETF (TSX:VUN).
Additionally, the 10 largest US IPOs this year, including SpaceX, SK hynix and Cerebras Systems, now sit at a negative 6.3 per cent weighted average return, reflecting concerns about overvaluation among top AI players, prompting investors to cast their due diligence efforts towards more prospective sectors.
This article is disseminated in partnership with biotech stocks Viking Therapeutics, Design Therapeutics and Liquidia. It is intended to inform investors and should not be taken as a recommendation or financial advice.
One of the beneficiaries of AI’s potential bubble has been the biotech sector, whose IPO cohort has posted a notably more attractive 55 per cent weighted average return through July 17th, in line with the iShares Nasdaq Biotechnology ETF (NASDAQ:IBB) rising by more than 40 per cent YoY, sitting just below its all-time-high, signaling a healthy investor appetite for the potentially life-changing returns of meeting unmet medical needs, balanced by firmer fundamentals than AI is able to muster at the moment. These include:
- Biotech’s stabilizing regulatory environment, highlighted by the US Food and Drug Administration adopting internationally recognized quality standards, cutting its traditional two-trial requirement for drug approvals in half, as well as gradually integrating real-world evidence and digital data into industry regulation.
- A demand environment, unlike the uncertainty surrounding AI’s ultimate utility, anchored by drugs delivering tangible improvements to patients’ quality of life, highlighted by weight-loss drugs such as Ozempic, whose hormone-suppressing mechanisms represent one of the most compelling healthcare breakthroughs of the century.
- Robust M&A activity, shining a brighter light on large-cap players vying to overcome expiring patents and small-cap operators whose portfolios hold the promise of extending revenue and profitability further into the future. Notable examples include AbbVie picking up inflammation and immunology specialist Apogee Therapeutics, GlaxoSmithKline purchasing clinical-stage oncology innovator Nuvalent, and Vertex Pharmaceuticals taking over Crinetics, a developer of therapeutics for endrocrine diseases, with each transaction coming in at US$10 billion or higher.
Despite drug development’s steep challenges, with about 90 per cent of new prospects failing to secure regulatory approval, investors are flocking into the biotech sector, appeased by growing support at the retail and institutional levels. This support is, in turn, incentivizing investors to align their portfolios with companies whose clinical-stage therapies offer the strongest evidence for reaching target markets and growing within them.
Viking Therapeutics
A compelling biotech stock that deserves a detailed inspection is Viking Therapeutics, market cap US$3.93 billion, a clinical-stage operator whose progress in the metabolic and obesity space makes it a prime candidate for M&A, as well as any investor with a long-term time horizon and a risk tolerance for pre-revenue companies.
VK2735
Viking’s flagship drug candidate, VK2735, is a dual GLP-1 and GIP receptor agonist being developed in injectable and oral formulations to stimulate weight loss and treat non-alcoholic steatohepatitis (NASH) and metabolic dysfunction-associated steatohepatitis (MASH).
VK2735 is on track to become the first dual agonist on the market available in both oral and subcutaneous forms, supported by weight-loss efficacy that rivals market leaders, as demonstrated by:
- Injectable phase-2 data showing mean body weight reductions of up to 14.7 per cent after 13 weekly doses, while substantiating a strong safety profile marked by only mild to moderate adverse events that quickly dissipated, primarily related to expected gastrointestinal effects.
- Oral phase-2 data showing up to 12.2 per cent mean weight loss through week 13.
Phase-3 studies for injectable VK2735 are fully enrolled, while phase-3 oral studies are slated to kick off later this year, further differentiating Viking among its peers in terms of patient optionality, putting the company on a near-term path to catering to both needle-averse patients, plus those seeking easier long-term maintenance of results achieved through injectable therapy.
Earlier-stage pipeline
Beyond VK2735, Viking is actively broadening its portfolio with a pair of promising earlier-stage treatments, including VK2809, an oral small molecule thyroid hormone receptor agonist that has proven capable of targeting select liver tissue, as well as the beta receptor subtype (which regulates fat metabolism), making it a good candidate to treat metabolic disorders, including NASH. In a recent phase 2B study, patients receiving VK2809 showed statistically significant reductions in liver fat content from baseline to week 12, posting a median relative change from 38-55 per cent.
Second, we have Viking’s VK3019, under an Investigational New Drug application with the US FDA, which targets the amylin and calcitonin receptors, both of which play crucial roles in our ability to control food intake. Pre-clinical data showed VK3019 to reduce body weight in mice by up to 10 per cent over a 24-day period, accompanied by improvements in key metabolic markers, including blood sugar, setting a prospective tone for a phase-1 clinical trial planned for Q2 2026 to strengthen the drug’s case as an alternative or complement to GLP-1 or dual GLP-1/GIP agonists.
The company is also advancing VK0214, a selective thyroid receptor-β agonist for X-linked adrenoleukodystrophy, a rare metabolic disorder that breaks down protective barriers surrounding the brain and nerve cells, bolstered by successful phase-1b data reported in Q4 2024.
Runway
In Q1 2026, Viking reported a net loss of US$158.3 million, more than triple the US$45.6 million loss registered YoY, primarily because of higher research and development expenses, relegating an investment to the highest-risk portion of your portfolio, at least until initial revenue and a path to profitability can be established.
Casting our eyes to the future, Viking ended Q1 with US$603 million in cash, cash equivalents and short-term investments, which should allow it to show off initial phase 3 results for VK2735 to investors before having to tap back into the capital markets.
Leadership
Viking ties its value proposition together with a leadership team well-versed across drug development, finance, commercialization and the scientific method, guided by Dr. Brian Lian, President, Director and Chief Executive Officer (CEO), who previously served as Managing Director and Senior Research Analyst at SunTrust Robinson Humphrey and Executive Director and Senior Biotechnology Analyst at CIBC World Market, where he covered small and mid-cap biotechnology companies specializing in diabetes, oncology, neurology and infectious diseases. Prior to his tenures in equity research, Lian worked as a research scientist at Amgen (NASDAQ:AMGN) focused on small-molecule drug discovery in the cancer and endocrine disease spaces.
Viking Therapeutics stock (NASDAQ:VKTX) last traded at C$33.50, adding 1.79 per cent year-over-year and 444.72 per cent since 2021, propelled by turnkey operations that should appeal to new investors, as well as major pharmaceutical companies, who missed the initial wave of metabolic drugs to hit the market.
Design Therapeutics
Moving with to our next biotech stock work keeping tabs on, we have Design Therapeutics, market cap US$741.36 million, a developer of small-molecule genomic medicines using its proprietary GeneTAC platform, which is capable of dialing up or down the expression of specific genes, opening the company up to a multi-billion-dollar addressable market (see slide 4 of the Q2 2026 investor deck).
The company’s value proposition centers on how there are more than 40 degenerative genetic diseases caused by nucleotide mutations affecting millions of people across the world today, including Friedreich ataxia (impaired transcription of a mutated gene) and Fuchs endothelial corneal dystrophy (FECD) and Huntington’s disease (formation of a pathogenic mRNA or mutant protein).
These patients are born with abnormally expanded stretches of specific nucleotide sequences and often face debilitating symptoms without recourse to any approved therapies to treat their underlying conditions. This is largely because legacy treatments for genetic diseases involve gene therapy or gene editing (slide 5), modalities where drug distribution and cell access have proven difficult to achieve.
This is where Design’s GeneTAC platform steps into the picture, offering clinical-stage molecules geared to specific tissues, controlling gene expression or blocking pathogenic mRNA or protein production as needed, without having to cut, edit or insert genes that run the risk of causing permanent genetic changes in host patients.
In this way, large biotech players in the rare disease space may benefit from taking Design Therapeutics under their wings, putting their considerably larger balance sheets in the service of GeneTAC’s blooming potential across nucleotide expansion disorders.
DT-216P2
Design’s flagship drug candidate, DT-216P2, is designed to target Friedreich’s ataxia, a disease characterized by deep sensory loss, hypertrophic cardiomyopathy, skeletal abnormalities and diabetes mellitus, among numerous other symptoms, by restoring the expression of the endogenous frataxin gene expression.
An ongoing phase-1/2 trial demonstrated dose-dependent improvement over four weeks, including increases in endogenous frataxin mRNA and protein with no serious adverse events, prompting the company to pursue a registrational path. Investors should expect a development update in the second half of 2026.
Earlier-stage pipeline
The company complements DT-216P2 with DT-168, a potential treatment for FECD currently being studied in a phase-2 trial evaluating safety, tolerability and corneal biomarkers. Illustrative results are expected by the end of calendar 2026.
Design is also advancing a phase-1 trial for DT-818, a potential treatment for myotonic dystrophy type-1, with initial data expected in 2027 on safety and the drug’s ability to mend gene mis-splicing.
Looking out farther ahead, the company is courting long-term growth through the preclinical characterization of numerous molecules prospective for the treatment of Huntington’s disease, a neurodegenerative disease that causes progressive movement, cognitive and psychiatric disorders, affecting at least 40,000 people in the US alone.
Runway
Design closed out Q1 2026 with US$22.8 million in cash, cash equivalents and investment securities, which leadership expects to bankroll growth plans into 2029, granting investors the better part of the rest of the decade to harvest potential upside from the company’s growing small-molecule portfolio.
Leadership
Design’s value-added approach to genetic medicine, bringing precision to a traditionally spray-and-pray industry, is in the hands of a team with proven leadership in DNA-targeted small molecules, gene transcription and clinical development.
The team is shepherded by Co-Founder, President, Chair and CEO, Pratik Shah, who previously served as chair of Synthorx, a biotech company developing protein therapeutics for cancer and autoimmune disorders that was acquired by Sanofi for US$2.5 billion.
He was also President and CEO of Auspex Pharmaceuticals, a biopharma company focused on medicines for movement disorders, that was acquired by Teva Pharmaceuticals for US$3.5 billion in 2015.
Before that, Shah was a partner at healthcare venture capital firm Thomas, McNerney & Partners for nearly 10 years, following a tenure as a consultant at McKinsey & Company in San Francisco.
Design Therapeutics stock (NASDAQ:DSGN) last traded at US$11.90, adding 198.99 per cent year-over-year, while giving back 23.13 per cent since 2021, presenting investors with rebounding market sentiment to integrate into their due diligence processes.
Liquidia
Our third biotech stock, Liquidia, market cap US$7.72 billion, is making its mark on the global patient population through commercial and late-stage treatments for pulmonary and vascular diseases.
At the heart of the company’s innovations is its PRINT technology, which produces drug particles in precise sizes, shapes and compositions geared to optimal lung absorption, plus superior stability and storage, yielding a pipeline of clinical studies between phase-1 and phase-4 expected to generate news flow into 2027 (see slide 6 of the company’s Q2 2026 investor deck).
Yutrepia
Liquidia’s flagship drug candidate, Yutrepia (treprostinil), is an FDA-approved inhalable powder designed to treat:
- Pulmonary arterial hypertension (PAH), caused when arteries in the lungs become thick and narrow, which affects more than 40,000 people in the US and carries a 75 per cent 3-year survival rate.
- Pulmonary hypertension associated with interstitial lung disease (PH-ILD), which affects more than 60,000 people in the US and carries an only 35 per cent 3-year survival rate.
Delivered through an easy-to-use, palm-sized device, Yutrepia offers higher dose tolerability compared to older nebulized competitors, attracting about 3,750 patients since its official launch in June 2025, with ongoing phase 4 studies vying to more firmly establish the drug’s ability to increase exercise capacity and delay disease progression.
Liquidia also offers treprostinil in injectable form with the same active ingredient but at a lower price than the branded drug.
L606
Liquidia is also developing L606, an extended-release version of treprostinil, administered through a nebulizer, leveraging a proprietary liposomal formulation that dispenses the drug into the lungs at a controlled rate.
The company is evaluating L606 in an open-label study in the United States focused on PAH and PH-ILD, as well as Re-Spire, a global placebo-controlled efficacy study towards a potential treatment for PH-ILD.
Runway
Among the trio of biotech companies highlighted in this article, Liquidia stands out for having reached profitability, with Q1 2026 being the company’s second consecutive quarter of positive net income, earning US$53 million, up from US$14.6 million in Q4 2025 and -US$3.5 million in Q3 2025. Q1 also marks the company’s third consecutive quarter of positive adjusted EBITDA, taking in US$71 million, US$27.3 million and US$10.1 million, respectively.
This increasing operational efficiency coincides with exponential net sales growth, notching US$129.9 million in Q1 2026, US$90.1 million in Q4 2025 and US$51.7 million in Q3 2025, with leadership focused on expanding PRINT’s reach to address unmet needs across a broader set of pulmonary and vascular diseases over the coming years. To this end, the company held US$222.8 million in cash and equivalents as of Q1 2026, up from US$190.7 million in Q4 2025.
Leadership
Liquidia’s cash-flowing operations and advanced clinical-stage pipeline are under the care of a leadership team whose extensive biopharmaceutical backgrounds, specializing in respiratory diseases, significantly de-risk the company’s path towards greater market share.
At the helm is CEO Roger Jeffs, who brings applicable experience as the Vice Chairman and Co-Founder of Kryia Therapeutics, a company developing gene therapies for rare and prevalent diseases.
Prior to that, Jeffs served as President and Co-CEO of United Therapeutics Corporation until 2016, following an 18-year tenure, during which he led the IPO and oversaw the clinical development and regulatory approval of six products for rare diseases. He guided the company to a more than 20 per cent compound annual growth rate, topping out at an US$8 billion market cap and a US$1.5 billion annual revenue run rate.
Liquidia stock (NASDAQ:LQDA) last traded at US$86.07, adding 346.88 per cent year-over-year and 3,642.17 per cent since 2021.
Takeaway
As high-flying AI stocks face valuation scrutiny and cyclical pushback, smart capital is pivoting towards sectors anchored by tangible demand and firm fundamental drivers. The biotech sector stands out as a prime destination, buoyed by favorable FDA regulatory streamlines, surging demand for potentially life-changing treatments and aggressive M&A activity.
Interested investors should set expectations around risk profile and stage-specific milestones before putting capital to work. In terms of pre-revenue companies, market drivers will hinge on clinical phase readouts, balance sheet strength and strategic buyout potential. In terms of commercial scalers, proving operational efficiency and cash-flow growth remain the gold standards for enduring long-term value creation.
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