What happened
Weight loss drugmakers are having an exceptionally strong trading session today. As of 10:32 a.m. ET Tuesday morning, Eli Lilly (LLY 1.19%) was up by a noteworthy 16.7%, Novo Nordisk (NVO 0.84%) was higher by 15.8%, and Viking Therapeutics (VKTX 7.92%) was in positive territory by 8.8%.
The spark? Ahead of the opening bell, Novo Nordisk announced trial results from a late-stage study evaluating the cardioprotective effects of its highly effective weight loss treatment Wegovy. Patients treated with the drug exhibited a 20% lower incidence of heart attack, stroke, or death from heart disease compared to those on a placebo, the company said.
So what
Obesity is a well-established risk factor for cardiovascular disease. So, in a sense, it's not all that surprising that losing weight goes hand-in-hand with a lower risk of heart attack or stroke. But these quantitative data should give Novo Nordisk the opportunity to expand the eligible patient population for Wegovy.
Speaking to this point, the Danish drugmaker reportedly plans on filing for a label expansion in both the U.S. and the E.U. to include this all-important cardiovascular risk-reduction benefit.
Lilly and Viking Therapeutics are following Novo Nordisk higher today because both companies have their own weight loss candidates that could benefit from this study. Lilly, for its part, is waiting to hear back from the Food and Drug Administration about its obesity label expansion for its type 2 diabetes med tirzepatide (brand name Mounjaro).
Viking Therapeutics is trialing an early-stage compound known as VK2735 as a next-generation weight loss treatment. The biotech expects to announce top-line results from an ongoing early-stage trial assessing an oral version of the drug in healthy adults later this year.
Now what
Are any of these weight loss stocks a table-pounding buy on this news? Prior to this announcement, Lilly and Novo Nordisk were already trading at sky-high premiums relative to their projected 2024 earnings. So, with this latest double-digit uptick in both stocks, neither stock screens as a compelling bargain right now.
Turning to the specifics, Lilly's shares are now valued at a whopping 13.4 times forward sales, and Novo Nordisk's shares aren't much cheaper at 11.4 times projected sales. To put these figures into context, most big pharma stocks trade at under 4 times forward sales.
By contrast, Viking Therapeutics could be an incredible bargain at current levels. With a market cap of approximately $1.34 billion at the time of this writing, the small-cap biotech might be trading at a substantial discount relative to its long-term value proposition.
The problem is that there is no way to predict how the obesity drug market will evolve over the next few years. Viking Therapeutics might have a mega-blockbuster product in its pipeline, but then again, competition is likely to be fierce by the time VK2735 is ready to enter the market (assuming positive clinical data in the interim).
All things considered, investors may want to sidestep Lilly and Novo Nordisk due to their sizable valuations. Viking, on the other hand, might be a worthwhile addition to a speculative growth portfolio.
