Could This Mid-Cap GLP-1 Stock Be a Better Buy Than Eli Lilly?
Key Points
Eli Lilly's high valuation could limit the stock's future returns.
Viking Therapeutics is a much smaller company, and it has a promising GLP-1 asset in VK2735.
Encouraging data around VK2735 recently gave the stock a big boost.
Investing in a top company can offer safety and stability, but oftentimes, the potential upside can also be limited. Take Eli Lilly (NYSE:LLY) as a prime example. It's a leader in the GLP-1 space and a top healthcare company, with a market cap of more than $1 trillion. It's generated impressive returns totaling more than 400% in five years, but with a much higher valuation, it may not perform nearly as well over the next five years.
Targeting a smaller stock instead may be a more compelling option for investors. And one that could have plenty of upside is Viking Therapeutics (NASDAQ:VKTX). It recently gave investors some terrific news related to its GLP-1 drug.
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Viking's stock surged on exciting GLP-1 data
Last week, shares of Viking Therapeutics took off after the company reported that its GLP-1 drug, VK2735, performed well in a recent clinical trial. Patients who used the drug weekly achieved weight loss between 16% and 19%. And when they transitioned to using it for maintenance purposes were able to maintain 97% of their weight loss when using it every other week, and 90% when using it on a monthly basis.
While VK2735 hasn't obtained approval from regulators, it has been demonstrating high efficacy in trials. Even if it doesn't end up rivaling Eli Lilly's Zepbound, even generating $1 billion or more in revenue could be a game changer for this healthcare stock. Currently, Viking doesn't have an approved drug in its portfolio, and thus, it just burns through cash. Approval of VK2735 could, however, change that significantly.
Viking's stock is risky, but it also has tremendous upside
At around $4.4 billion in market cap, Viking is nowhere near the size of Eli Lilly. It's not as safe a stock to own, and while VK2735 has shown progress in trials, there's no guarantee it will obtain approval in the near future.
But for investors who are willing to take on risk and accept that uncertainty, I believe there could be considerable gains ahead. Healthcare companies are eager to get into the GLP-1 race, and Viking, which has a compelling asset in VK2735, could potentially become an attractive acquisition target for a larger healthcare company to pursue. Thus, the stock could surge in value if the drug obtains approval, or simply if another company ends up acquiring it, for the purpose of adding VK2735 to its portfolio.
In the past 12 months, Viking's stock has risen by more than 40%, but with a modest market cap, it may still have plenty of room to become much more valuable in the future.
David Jagielski, CPA has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Eli Lilly. The Motley Fool recommends Viking Therapeutics. The Motley Fool has a disclosure policy.