Better Weight Loss Drug Stock: Viking Therapeutics vs. Zealand Pharma

If you're looking to pick up some exposure to biotechs that are developing anti-obesity medications, there's no shortage of options. But with the substantial risk of investing in biotech in general, and with the massive returns that are likely lurking in the market for weight loss drugs over the next decade, investors should focus their search on the cream of the crop.

In that vein, Viking Therapeutics (NASDAQ: VKTX) and Zealand Pharma (OTC: ZLDP.F) are among the best biotechs aiming to enter the cardio-metabolic space in the next few years. Here's how they shape up in a head-to-head comparison.

Why Viking Therapeutics will probably continue to be a good investment

At the moment, Viking doesn't have any medicines on the market, though that will likely change over the next two years with the commercialization of one or more anti-obesity medicines.

Viking's weight loss pipeline depends on the success of its lead candidate, VK2735. VK2735 is being tested in two formulations: an injection and an oral tablet. The injection format is approaching late-stage clinical trials, whereas the pill is still in early-stage trials. Having the convenience of a pill might draw in marginal patients who would otherwise eschew treatment.

The chief advantage of VK2735 compared to the weight loss drugs that are currently on the market, produced by titans like Eli Lilly and Novo Nordisk , is that it seems to help patients lose weight at a faster clip. Patients who were treated with VK2735 for 13 weeks experienced average weight loss of 13.1% of their total mass beyond what the patients treated with a placebo experienced.

That implies that Viking might not need to manufacture as much of its candidate to meet demand, which is an advantage. Furthermore, the side-effect profile is similar to the reigning champions, but, importantly, patients can in theory also continue to take the drug for as long as necessary to reach their target weight, as the beneficial properties do not appear to taper off over time.

The final piece of the puzzle with Viking is that it has $942 million in cash, cash equivalents, and investments -- a massive war chest for a biotech trying to enter the market for the first time. With funding like that, it probably won't need to raise more capital to get VK2735 commercialized, assuming it gets approved for sale. It will also probably have enough cash to fund extensive manufacturing operations up-front, or perhaps even acquire a manufacturer for its needs.

So it's safe to say that this company's positioning is quite bullish right now, though it is still possible that its clinical trials won't generate the data it needs to get an approval.

Zealand Pharma is the more experienced player

Zealand Pharma is a Danish biotech that has a long history of inking research and development (R&D) partnerships. In those partnerships, it does the discovery, preclinical, and clinical research work, then licenses its successful candidates to big pharmaceuticals for commercialization.

So its pipeline, which currently features four obesity-targeted programs, requires less cash earmarked up front to proceed with promising projects.

At the moment, its most advanced program is known as survodutide, which is in phase 3 clinical trials. In a phase 2 trial where people were treated with it for 46 weeks, patients in the highest dose cohort lost an average 18.7% of their body weight. That positions it as being less effective than Viking's candidate.

Survodutide has also been investigated in phase 2 trials for its usefulness in treating metabolic-associated steatohepatitis (MASH, formerly known as NASH), as well as type 2 diabetes. Thus Zealand could eventually pick up several licensing deals for the price of developing one medicine, which would be a big upside.

Either choice could work

Both of these companies are well-capitalized, and both have more than sufficient resources to accomplish their near-term goals. While Viking's candidate has an edge in terms of its efficacy, Zealand's obesity drug pipeline is far larger, and it has programs with varying mechanisms of action.

That means it likely has far more shots on goal than Viking does, and, to mix metaphors, it also has exposure to more therapies that could be home runs by virtue of working differently than the products currently on the market. Plus, its license-based business model gives it more leeway to invest in its core R&D activities rather than prepare for manufacturing and distribution as Viking will need to. It's also a big plus to have collaborators handle commercialization costs.

But the very same model is what caps the returns Zealand can make from its successful programs, which isn't a problem with Viking.

If you only pick one, pick Viking. But be aware that it's reasonable to buy shares of both of these companies if you're willing to hold for several years.

Before you buy stock in Viking Therapeutics, consider this: