Eli Lilly (LLY 1.53%) has become a big name in the anti-obesity market with the recent approval of Zepbound, which is likely to rake in billions in revenue alongside Mounjaro, the company's diabetes treatment. Year to date, the stock is already up 57% as investors continue to pile money into the growth beast.
But you may not want to buy the stock around its highs, if you feel you might have missed the boat on Eli Lilly. The good news is that there's a much smaller healthcare stock that can also give you some terrific growth prospects in the anti-obesity market: Zealand Pharma (ZLDP.F 0.46%). Here's why this might be an exciting stock to own.
The company has a couple of promising assets
Zealand Pharma is a Danish-based biotech company with a market cap of around $9.3 billion -- a small fraction of Eli Lilly's monstrous $820 billion valuation. But investors have been starting to take notice of this up-and-coming healthcare stock; its shares are up more than 135% this year.
What has investors excited is not just one but two exciting treatments aimed at helping people lose weight. The stock recently got a boost after Zealand released results from an early-stage trial involving petrelintide, a drug which helped patients lose up to 8.6% of their body weight, on average, over a period of 16 weeks. The drug was well tolerated, which is key in early trials, and the company plans to move forward with a phase 2 trial.
Earlier in the year, Zealand's stock also got a boost when another of its drugs demonstrated impressive trial results. Survodutide is being tested as a possible treatment for weight issues and for a type of liver inflammation, metabolic dysfunction-associated steatohepatitis (MASH). In phase 2 trials for MASH, it helped 83% of participants achieve some type of improvement. At the same time, survodutide has exciting potential as a weight loss drug. In phase 2 trials, it's shown it can help people lose as much as 20% of their body weight.
Zealand is a far riskier stock to own
The potential upside in Zealand Pharma comes at a cost, however, as this is a much riskier stock than that of a larger and much more established company like Eli Lilly. Through the first three months of the year, Zealand Pharma has generated revenue totaling just 15.1 million Danish krone ($2.1 million), and it showed an operating loss of 255.8 million Danish krone ($35.8 million).
The problem is that with Zealand's market cap near $10 billion, many investors appear to already be pricing in the approval of at least one of its weight loss drugs. The danger is that if survodutide (which is closer to the finish line) falters and fails to obtain approval or delivers results in clinical trials which fall short of expectations, that could make the healthcare stock vulnerable to a sell-off.
Should you invest in Zealand Pharma?
Zealand Pharma is a stock which has a lot of potential, but a lot hinges on whether the company can get a weight loss treatment approved. If it does, then the share price could soar; if it doesn't, the opposite may happen.
If you buy shares of Zealand, be aware of the dangers that come with the investment; this won't be a suitable option for many investors and unless you have a high risk tolerance, you may still be better off going with Eli Lilly. But if you're willing to take on the uncertainty and the risk, there could be huge gains to be made from the stock if either of its weight loss treatments obtains regulatory approval.
