Comparing Eli Lilly (LLY +1.83%) and Viking Therapeutics (VKTX +1.25%) might initially seem odd. The two drugmakers don't seem to have much in common. Eli Lilly is more than 50 times the size of Viking by market cap and boasts a long list of approved medicines and an impressive track record of success. Viking Therapeutics, on the other hand, is a clinical-stage, mid-cap biotech stock whose most advanced candidate isn't even in a late-stage study yet. Yet for invest purposes, is there any reason to choose Viking Therapeutics over Eli Lilly? Let's find out.
NYSE: LLY
Key Data Points
The case for Eli Lilly
Eli Lilly has delivered market-crushing returns over the past few years, and it isn't hard to figure out why. The drugmaker has made impressive regulatory progress, none more important than tirzepatide, a clinical compound marketed as Mounjaro targeting Type-2 diabetes, and Zepbound for treating obesity. Tirzepatide is the first and only dual GLP-1/GIP medicine to earn approval from the U.S. Food and Drug Administration (FDA).
In a nutshell, these two classes of drugs work by stimulating certain hormones in the body that help patients feel fuller for longer, and promote satiation. That's how they help patients lose weight. Some analysts predict that Eli Lilly's tirzepatide could hit peak sales of $25 billion and become the best-selling therapy in the history of the pharmaceutical industry. Eli Lilly's lineup goes far beyond this lone product, though.
The company has several products whose sales are still growing at a good clip. That includes immunosuppressant Taltz, diabetes medicine Jardiance, and cancer drug Verzenio. Last year, Eli Lilly earned key approvals, including Omvoh, a therapy for ulcerative colitis, and cancer therapy Jaypirca. Eli Lilly is expecting another important regulatory nod this year, for donanemab, a potential Alzheimer's disease medicine.
Eli Lilly has delivered excellent financial results. Last year, its total revenue of $34.1 billion increased by 20% year over year. The company's net income did decrease by 16% year over year to $5.2 billion, mostly due to expenses related to some acquisitions it made last year. Analysts expect Eli Lilly's earnings per share to increase by as much as 50% per year in the next five years.
In short, the case for Eli Lilly is rock solid.
NASDAQ: VKTX
Key Data Points
The case for Viking Therapeutics
Viking Therapeutics generates no revenue, and so is yet to be profitable. Still, clinical-stage biotechs can deliver incredible stock returns, provided they record solid clinical progress. Case in point: Viking Therapeutics' shares recently doubled in just one day after the company announced positive phase 2 results for its leading candidate, VK2735, a potential dual GLP-1/GIP medicine, in weight loss.
The biotech says VK2735 showed a statistically significant decrease in body weight versus placebo in the study while being generally well-tolerated. There is still a long way to go before VK2735 earns approval, but if it goes that far, Viking's stock could soar through the roof with data readouts like those. The biotech has another promising therapy in the pipeline called VK2809, a potential treatment for non-alcoholic steatohepatitis (NASH). It should produce some data in the first half of the year.
This market seems to have a bright future. There is currently no FDA-approved therapy for NASH (although the first could come down soon), while analysts expect spending in this area to hit as much as $110 billion by 2030. Viking Therapeutics does not need to become a leader in either NASH or obesity to earn outsized returns. It only needs to carve out a small niche for itself. If the biotech can maintain solid clinical updates and launch VK2735 and VK2809 in a few years, it could perform even better than the mighty Eli Lilly.
What's your investing style?
Viking Therapeutics announced a proposed public offering of common stock after its shares soared following its data readout, a move that will probably drag its stock price back down. Finding sources of funding is essential for smaller biotechs that have no products on the market. Resorting to dilutive forms of financing is often inevitable. Investors should keep that in mind. Here's another issue: If Viking Therapeutics' clinical results aren't up to investors' standards -- or if it runs into regulatory roadblocks -- the stock might drop off a cliff.
The bottom line is clear: Viking Therapeutics' potential is enormous, but so is its downside. Investors should opt for Eli Lilly unless they have a high tolerance for risk and volatility.
