Should You Forget Eli Lilly and Buy This Magnificent Biotech Stock Instead?

Eli Lilly (LLY -3.15%) sells a broad range of pharmaceuticals treating various diseases, but one portfolio in particular has helped its earnings and its stock soar in recent times. It consists of the company’s weight loss drugs: Mounjaro, approved for type 2 diabetes but also prescribed off-label for weight control, and Zepbound, specifically approved for the weight control indication.

These drugs, both dual GIP/GLP-1 receptor agonists, work by acting on hormones involved in the digestion process — and as a result they help control blood sugar levels and appetite. Lilly and its big pharma rival Novo Nordisk today dominate the weight loss drug market, but competition may be on the horizon.

In fact, one up-and-coming player is attracting a lot of attention these days, thanks to its fantastic clinical trial results. And its first weight loss candidate may soon launch phase 3 trials, the last stage of development prior to regulatory review. I’m talking about Viking Therapeutics (VKTX -2.71%).

Should you forget Eli Lilly and buy this magnificent biotech instead? Let’s find out.

Image source: Getty Images.

Viking’s clinical trial results

Viking’s candidate, like Lilly’s drugs, is a dual GIP/GLP-1 receptor agonist. Also like Mounjaro and Zepbound, VK2735 is administered by injection. In a phase 2 study, VK2735 met all primary and secondary endpoints and resulted in mean weight reduction of as much as 14.7% after 13 weeks. The company is planning a meeting with regulators this quarter to prepare for a phase 3 trial.

Viking stood out recently during Obesity Week, an annual event highlighting progress in the area of weight loss, when it talked about its oral formulation of VK2735. In a phase 1 trial, the candidate showed reduction in mean body weight of up to 8.2% after only 28 days — and, importantly, it was well tolerated even at the highest dose of 100 mg daily. A pill format could be a game-changer because it makes administration of the drug easier and more convenient for patients.

Now let’s consider Viking’s chances of winning in the weight loss market, considering the strength of today’s leaders. It’s true that these big pharma companies have first-to-market advantage and have the resources to support advertising and manufacturing as well as the development of new candidates.

Speaking of new candidates, Lilly, too, is working on oral weight loss drug — and Lilly’s candidate is involved in phase 3 trials. So, if all goes well, it should reach commercialization before Viking.

I wouldn’t see Viking or other new players as a threat to today’s leaders. That said, considering demand in this market and growth forecasts, there’s room for more than just a couple of players to succeed in the space. Demand for weight loss drugs over the past couple of years has put Lilly’s and Novo Nordisk’s drugs on the U.S. Food and Drug Administration’s drug shortage list — and prompted both companies to increase investments in manufacturing capacity.

And as for growth, the obesity drug market may reach $130 billion by the end of the decade, according to Goldman Sachs Research. That’s up from Goldman’s earlier forecast of $100 billion.

Viking’s possibilities

All of this means that Viking Therapeutics, even if it enters the market much later than its big pharma rivals, still could carve out share. And a company of its size — with a market value of $6.7 billion compared to the $777 billion of Lilly — may become highly successful even with a much smaller share of the obesity drug market than the pharma giants. Viking also may score a win for investors if it partners with another player or agrees to a buyout. Many in the industry are eager to enter the weight loss drug market, and Viking offers a very promising pipeline.

Now, let’s get back to our question: Should you forget Lilly and go for this exciting biotech stock? This depends on your comfort with risk. If you’re a cautious investor, you’re better off sticking with Lilly: It offers a solid earnings track record, the security of a broad product portfolio, and passive income through the payment of dividends.

If you can handle some risk, though, and are looking to add a dynamic growth stock to your portfolio, you might favor Viking. The stock has been known to soar on positive data from its weight loss program, and since we’re still early in this story, many catalysts lie ahead.