Better Growth Buy: Eli Lilly vs. Viking Therapeutics

Globe and Mail

6 days ago

Key Points
Pharmaceutical giant Eli Lilly delivers strong financial results and has a deep lineup and pipeline.
Much smaller Viking Therapeutics boasts several candidates whose progress could jolt its shares.
One of these drug stocks is the safer bet, but the other could have more upside potential.
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Eli Lilly (NYSE: LLY) and Viking Therapeutics (NASDAQ: VKTX) have garnered considerable attention over the past year due to their solid clinical progress. However, these drugmakers have also lagged the market over the trailing-12-month period. That said, there are good reasons to expect both to bounce back and perform well over the long run.
But which is a better stock to invest in today? Let's find out.
The case for Eli Lilly
Eli Lilly is a well-established pharmaceutical leader that consistently generates revenue and earnings. The company's top line has been growing much faster than those of its peers in recent quarters. In the first quarter, Lilly's revenue increased by 45% year over year to $12.7 billion, while net income of $2.8 billion came in 23% higher than the year-ago period.
Lilly owes this performance to several medicines, especially Mounjaro for diabetes and Zepbound for weight management. Its lineup features other blockbusters, including cancer drug Verzenio and immunosuppressant Taltz. Newer therapies, like Alzheimer's disease medicine Kisunla and eczema treatment Ebglyss, could also eventually contribute meaningfully to its top line.
And in the foreseeable future, the company is poised to be a leader in the rapidly growing anti-obesity market. It's developing several exciting medicines in this field, including orforglipron, an oral GLP-1 candidate. Orforglipron recently aced a phase 3 study in diabetes, and it's undergoing late-stage trials in obesity. Lilly's pipeline also features other promising investigational weight loss therapies such as retatrutide.
Beyond its core area of therapeutic expertise, Lilly has a robust pipeline across oncology, immunology, and other fields. The company's innovative abilities should serve it well over the long run.
Lastly, Eli Lilly is a top dividend stock: The company has increased its payouts by 200% in the past decade. Even after a terrific run over the past five years, the stock should still deliver above-average returns to patient investors.
The case for Viking Therapeutics
Viking Therapeutics rose to fame last year when its leading candidate, VK2735, aced a mid-stage trial in the fast-growing area of weight management; the drug was recently moved to phase 3 studies. The biotech is now developing an oral formulation of VK2735, which is currently undergoing a phase 2 trial. Viking should report results from this study by the end of the year, and positive results could jolt the stock.
Another investigational medicine entering late-stage studies, VK2809, is a potential therapy for metabolic dysfunction-associated steatohepatitis (MASH) that could become an important product for the company. Last year, the U.S. Food and Drug Administration approved the first medicine specifically for MASH.
There's a massive unmet need in this field, with an estimated 9 million people in the U.S. who live with clinically significant MASH-related liver disease, so there's room for many newer medicines; Viking's VK2809 may join the mix eventually.
The company -- which targets conditions with vast or unmet needs -- is also developing VK0214 as a therapy for X-linked adrenoleukodystrophy (X-ALD), a debilitating rare genetic disorder of the nervous system. There is currently no medicine for X-ALD.
Like most clinical-stage biotechs, Viking Therapeutics doesn't yet generate revenue and operates at a loss. However, consistent clinical and regulatory progress could send the company's shares soaring.
The verdict
Which one of these two stocks should you consider buying? If you had to choose, it might depend on your goals and risk tolerance.
Eli Lilly is the safer bet, as it has a deep lineup and pipeline of products, generates significant revenue that has been growing at a steady clip, and is consistently profitable. Lilly also pays a dividend. It's the better choice for risk-averse, income-seeking investors.
One potential issue with the pharmaceutical giant may be its valuation. Its recent forward price-to-earnings (P/E) ratio of 36.8 is more than twice the healthcare industry's average of 16. But the stock is arguably worth it, given its terrific growth prospects.
What about Viking Therapeutics? The smaller drugmaker could have significantly more upside than its larger peer, but only if it can deliver strong clinical data for its two leading candidates. The flip side is that it's riskier. Its shares will plunge if it faces severe setbacks, especially with its leading program, VK2735.
But it remains a decent choice for investors with a larger appetite for risk. If that describes you, you may want to initiate a small position in the stock and progressively add more as the company proves itself.
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