A smart investment strategy is to diversify your portfolio with both stable, established companies and growth stocks. Growth stocks, particularly those from the biotech industry, are often in the early stages of development. As a result, while these companies are risky, they also have more room for expansion. One such company is Skye Bioscience (SKYE), a clinical-stage biopharmaceutical company developing new therapeutic pathways for metabolic health.
Skye stock has earned a “Strong Buy” rating on Wall Street, with a forecast of over 500% upside from current levels. This optimistic outlook is primarily due to the company’s lead candidate nimacimab for obesity.
Skye is attempting to establish a name for itself in the popular and rapidly expanding weight-loss drug market. According to Morgan Stanley, the global market for obesity drugs is estimated to be worth $105 billion by 2030. With Novo Nordisk (NVO) and Eli Lilly (LLY) dominating the obesity treatment market, can Skye’s candidate provide anything unique? SKYE, valued at less than $1 million, is up 1.8% year-to-date, compared to the S&P 500 Index’s ($SPX) gain of 1.9%.
While the stock’s upside is appealing, let’s dig into whether investing in this clinical-stage biotech stock is worth the risk right now.
Weight-Loss Drug Market Is Very Competitive
Skye Bioscience is entering the highly competitive weight-loss drug market. The market is rapidly expanding, with Novo Nordisk’s Ozempic and Wegovy, and Eli Lilly’s Mounjaro and Zepbound capturing significant market share. Skye’s lead candidate is nimacimab. The company is conducting a Phase 2 clinical trial to determine if nimacimab can treat obesity. The study is also examining the combination of nimacimab and Wegovy. Skye anticipates top-line data following the completion of full enrollment in the trial in the fourth quarter of 2025.
Skye’s unique drug technology could give it a leg up in this highly competitive market. Unlike GLP-1 drugs, which primarily work by slowing gastric emptying and reducing appetite, nimacimab inhibits CB1 receptors outside the brain. The company believes that peripheral CB1 inhibition is a novel and alternative mechanism. The goal is to boost energy expenditure, promote fat breakdown, improve leptin sensitivity, and modulate appetite-related signals, potentially providing a complement to existing weight-loss therapies such as GLP-1 agonists.
Global estimates show that currently 2.7 billion adults worldwide are living with obesity. Thus, the market for weight-loss treatment is huge. According to a GlobalData analyst, Eli Lilly’s Zepbound is estimated to be more effective, resulting in a 20.2% weight loss in patients, whereas Wegovy results in an average weight loss of 13.7%. Meanwhile, as per clinical trial data, Skye’s nimacimab has resulted in an 8% difference in mean weight loss at 26 weeks. However, if the GLP-1 and nimacimab combination outperforms GLP-1 alone, Skye could establish itself as a partner for major weight-loss pharmaceutical companies.
Cash Could Be a Concern
At the end of the third quarter, Skye had $76.5 million in cash and cash equivalents, including $9.1 million in restricted cash. The company expects to use this cash balance to fund its operations until the third quarter of 2027. A biotech company in the clinical stage will continue to burn cash to move its pipeline ahead. Research and development (R&D) expenses in the quarter increased to $4.9 million from $1.3 million in the year-ago quarter. Net loss stood at $3.9 million.
As Skye generates no revenue, cash burn concerns will eventually catch up. The company will have to raise capital through equity offerings, which may result in stock dilution for shareholders.
Skye Stock: Wall Street’s Outlook
Analysts are optimistic about Skye Bioscience stock, with all six rating it a “Strong Buy.” Recently, Cantor Fitzgerald analyst Kristen Kluska reiterated an “Overweight” rating for SKYE with a price target of $14. Kluska believes that, even if investors are skeptical, the Phase 2 trial results for nimacimab will be critical in determining the company’s growth trajectory. The average target price of $18 implies 525% upside potential, while the high price estimate of $21 suggests a 626% rally over the next year. While the upsides appear unattainable, it is not an impossible target, particularly for biotech stocks, which can skyrocket with a single drug approval.
However, biotech stocks also carry a lot of risk because clinical trials can fail, and research has shown that only about 12% of drug candidates in clinical trials are approved by the FDA. Investors who are willing to take on this risk may find Skye stock worthwhile right now, while others may want to steer clear of this biotech stock.
