1 Weight Loss Pharma Stock to Buy, and 1 to Consider
If your portfolio doesn't have exposure to the biopharma businesses pursuing the development of weight loss medicines, it might be time to consider changing that situation. With an influx of new drugs for sale, and many competitors looking to secure their share of the pie, there's more than one company that could experience dramatic growth in the next few years and beyond.
On that note, let's examine one of the segment's leaders that's worth buying now, and one of the smaller players with an interesting business model that might pay off for its shareholders in the long run.
One to buy: Eli Lilly
Eli Lilly (NYSE: LLY) and its chief competitor Novo Nordisk are the two undisputed champions of the weight loss market today.
Eli Lilly's anti-obesity drug Zepbound brought in $517.4 million in the first quarter alone. Since it hasn't even been on the market for a full year yet, its blockbuster drug status is essentially guaranteed. But the company's strategy doesn't stop with simply trying to push Zepbound for weight loss. It's working to expand the approved indications of Zepbound to include many of the health issues that are either causes or effects of obesity that the drug might ostensibly treat.
In that vein, it's doing late-stage clinical testing of Zepbound in contexts like reducing or preventing obstructive sleep apnea, cardiovascular disease risk, and all-cause mortality risk. Those programs have generated very positive evidence so far, and there is thus a high probability that Lilly will succeed in getting regulators on board with its plans to expand Zepbound's addressable market. Even more revenue would soon follow.
And Zepbound isn't the pharma's only iron in the fire. It also has another pair of late-stage programs called orforglipron and retatrutide that are being investigated for their use as weight loss agents, as well as for type 2 diabetes -- the same indication that Zepbound's sibling medicine Mounjaro treats.
If either of those two attempts make it to the market, the company will potentially have another matrix of opportunities for further research and development (R&D) by virtue of testing combinations of its approved medicines and re-bundling them as new products if they're helpful. Such an approach would be less expensive than developing new molecules from scratch, and it'd also have the benefit of an expedited clinical trials process.
So far, the main thing holding Eli Lilly back in the weight loss market is a lack of manufacturing resources relative to demand. But with billions and billions being invested into solving that problem, it won't be an issue for too much longer. And it's hard to identify a better setup to buy a pharma stock than that one.
Consider Zealand Pharma
Zealand Pharma (OTC: ZLDP.F) is a biotech that doesn't yet have a weight loss drug on the market, but it's still worth considering for a purchase. Its most mature program, survodutide, is in phase 3 clinical trials, and it has another pair of programs in early- to mid-stage trials.
There are a few advantages that Zealand may have over the market's incumbents that could make finding a market share relatively easy.
First, there's its business model. Rather than seeking to do primary drug development as well as manufacturing like Lilly and other major pharmas do, Zealand does its R&D with the goal of handing off its proven clinical-stage assets to licensors that will do the work of commercializing its medicines.
Its lead asset is already set with a deal from Boehringer Ingelheim, a major private European biopharma business. The advantage of doing things this way is that the biotech can focus on what it's good at -- drug development -- rather than the post-approval things it has no experience with and probably lacks the resources to do effectively, saving costs and headaches along the way. In other words, while the upside it gets from developing medicines is effectively capped by the terms of its licensing agreements, so is the risk.
The other advantage that Zealand has is that all of its clinical-stage candidates for treating obesity use different mechanisms of action from the therapies made by Lilly and Novo Nordisk, as well as different mechanisms of action from most of the aspiring contenders in biotech. While it's a riskier approach to try something different from the proven winners, it's also a key differentiator. If one of Zealand's candidates succeeds and gets approved for sale, there's a good chance that by virtue of it using a different mechanism of action, it'll be better than the incumbents for at least one of the many overlapping patient populations within the obesity therapies market.
But, as a biotech stock, this company is far from riskless despite its smart strategy and innovative candidates. It isn't profitable, and its meager revenue of $2.2 million in Q1 is nowhere near enough to keep the lights on forever. It also just raised $1 billion in cash from a stock offering, which, when paired with the $290.3 million in cash and investments it had at the end of the first quarter, should be enough to keep it in business for at least the next three years or so.
So, if none of its candidates pan out, Zealand might be in trouble, which means it isn't the best stock to buy if you're not fairly tolerant of the typical biotech stock risks.
Before you buy stock in Eli Lilly, consider this:
