A big focus for healthcare companies recently has been on the weight-loss industry. It's no coincidence that two of the most valuable healthcare stocks in the world are big players in that field with a couple of promising weight-loss treatments.
Companies are eager to get glucagon-like peptide 1 (GLP-1) drugs to market because they could help bolster their long-term growth prospects. And investors are paying attention, as possessing the next big weight-loss drug could be a sign of a stock that's due to skyrocket.
Even non-investors may be familiar with Novo Nordisk by now as the company's diabetes treatment Ozempic has been incredibly popular over the past few years. It's even become a trend on social media, due to the GLP-1 drug's ability to help people lose weight. In five years, the stock has soared more than 440%.
If you're not eager to jump aboard Novo Nordisk stock and its already high valuation, there's a much smaller Danish stock you may want to consider instead: Zealand Pharma (ZLDP.F 2.27%)
Zealand's stock is up 81% this year
Since the start of the year, Zealand's stock has outperformed Novo Nordisk, up 81% versus 27% for its much larger Danish peer. Investors are bullish on the stock due to the company's progress in a recent trial for one of its drugs, which shows promise as a potential weight-loss treatment.
In a phase 2 trial, survodutide was effective as a treatment for metabolic dysfunction-associated steatohepatitis, more commonly abbreviated as MASH, a type of liver inflammation. Eighty-three percent of adults who used the drug in the trial achieved some improvement. What was also important is that at a 6mg dose, the drug was safe and there weren't any serious health concerns.
That bodes well for the drug in an ongoing obesity trial (which is in phase 3), where the same dosage is involved. While it may not necessarily mean it will produce a high percentage of weight loss, safety and adverse side effects are of key concern for investors, as that could derail a drug, regardless of its effectiveness.
In a phase 2 obesity trial, survodutide helped up to 40% of people lose at least 20% of their body weight after 46 weeks.
This is a riskier option for investors
With Novo Nordisk, investors benefit by investing in a large, established pharmaceutical company with strong revenue and profit numbers. Zealand Pharma isn't nearly as large or as safe. While the company has generated impressive top-line growth over the years, its bottom line is nowhere near breakeven.
In 2023, Zealand reported a net loss of 703.7 million Danish krone ($105.6 million) as its revenue more than tripled to 342.8 million Danish krone ($51.4 million). The sharp increase in the top line was due to an increase in milestone payments related to its collaboration with Boehringer Ingelheim -- the two companies have been developing survodutide together. Novo Nordisk is also one of Zealand's collaboration partners.
There's some risk for Zealand's business, given its losses and continual cash burn. But with survodutide in late-stage trials and potentially contributing revenue soon, Zealand's financials could soon look a whole lot stronger.
The company isn't in a dire situation by any means, either. Zealand finished last year with cash and marketable securities totaling 1.6 billion Danish krone ($245 million), and its operating cash burn during the year was 425.7 million Danish krone ($63.9 million). The company's operations appear to be sustainable and well-funded right now.
Is Zealand Pharma stock a buy?
Zealand Pharma is a risky option but possesses some intriguing upside right now. At a market capitalization of just over $6 billion, it's a small fraction of Novo Nordisk's massive size.
Even though it's up big this year, this healthcare stock could just be scratching the surface in terms of its long-term potential. Investors who are comfortable with the risk should consider buying Zealand Pharma stock today.