Eli Lilly (LLY 1.85%) has become a giant in what may be a $100 billion market a few years from now. I'm talking about the world of weight loss drugs.
Doctors have been prescribing Mounjaro and the newly approved Zepbound to patients aiming to shed pounds, and that's brought in billions in revenue to the pharma giant. These drugs work by acting on glucagon-like peptide-1 (GLP-1) and glucose-dependent insulinotropic polypeptide (GIP), two hormone pathways involved in the digestion process.
But in the coming years, Lilly could face competition from a young biotech that was founded in 2012 called Viking Therapeutics (VKTX 0.20%). This new kid on the block is developing a drug candidate that works in the same way as the Lilly drugs and recently reported excellent clinical trial data.
The news was so good that Viking's share price soared 120% in just one trading session. Is this potential biotech star on its way to becoming the next Eli Lilly?
Image source: Getty Images.
Lilly's weight-loss drugs
First, let's consider Lilly's business. Though weight loss drugs are becoming a bigger and bigger part of the company's revenue picture, Lilly is well diversified across treatment areas. It sells a vast portfolio of products in specialties such as immunology, neuroscience, and cancer.
In the most recent quarter, Lilly's treatments delivered more than $9.3 billion in revenue, representing 28% growth year over year. Most of these drugs each posted revenue increases, so Lilly's growth is broad-based, driven by a great number of products.
However, weight loss drugs are leading the way. In the quarter, Mounjaro represented more than 20% of Lilly's revenue.
It's important to remember this drug actually is approved for type 2 diabetes, so the revenue gain isn't linked to weight loss demand only. But two other elements point to the high growth potential of this treatment area: Demand for Lilly's Mounjaro and Zepbound has exceeded supply in recent times, and Zepbound generated more than $175 million in revenue in only its first few weeks on the market
Now let's consider Viking Therapeutics. The company's weight-loss candidate VK-2735 met primary and secondary endpoints in its phase 2 trial. Volunteers given VK-2735 reached as much as 13.1% mean weight loss after 13 weeks of treatment. The candidate also was safe and well tolerated, with most adverse events falling into the mild-to-moderate category.
Viking aims to advance the candidate toward the finish line, so the next step likely will be the launch of a phase 3 trial. The company says it's involved in discussions with regulators to decide its next move.
NASDAQ: VKTX
Key Data Points
Viking's first potential product
Viking doesn't yet have a product on the market, so if all goes smoothly with VK-2735, this could be the company's first. But others may follow over the coming years as Viking has two additional candidates in the pipeline.
One aims to tackle nonalcoholic fatty liver disease, and the other is a candidate for X-linked adrenoleukodystrophy, a condition affecting the nervous system. The company also is testing VK-2735 in an oral formulation in a phase 1 trial.
Let's get back to our question: Could Viking become the next Eli Lilly?
It's important to remember that Lilly, though valued at more than $700 billion today, had the same market capitalization that Viking has today back in the late 1980s -- about $7 billion. Over time and as a biotech or pharma company commercializes products and generates more and more revenue and attracts investors, that player could significantly grow its market value.
Speaking of products, Viking could potentially bring its weight loss candidate to market and carve out a decent share. Demand is strong, and according to Goldman Sachs Research, the market could reach $100 billion by 2030. Even if Viking's product is on par with or better than Lilly's, the company may find itself a few steps behind the pharma giant due to key details like manufacturing and commercialization -- areas where Lilly has both expertise and strong financial resources.
Still, in the weight loss market only, if all goes smoothly for Viking, the company eventually could be seen as Lilly's peer. But overall, Viking is unlikely to become Lilly No. 2. The biotech's pipeline, at least today, is limited in size and scope, so it's not on track to commercialize the great number of medicines Lilly does -- and generate the same level of revenue.
If you're looking for the next Eli Lilly, it's best to turn to young players with a more diversified pipeline, and a couple of products already on the market.
