Forget Eli Lilly and Novo: This Biotech Could Be a Surprising Winner in the Weight Loss Market

The weight-loss market is growing rapidly, and while long-term projections differ on how large it will become, they generally agree that it will maintain its upward trajectory at least over the medium term. Investors can capitalize on this industry's growth by buying shares of those companies likely to emerge as top players. Right now, it looks likely that Eli Lilly (NYSE:LLY) and Novo (NYSE:NVO), the current market leaders, could maintain their lead over the next five years or so. However, other drugmakers are making progress in this field and are worth considering for investors. One of them is Regeneron Pharmaceuticals (NASDAQ:REGN).

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Regeneron's differentiated approach

Regeneron has at least two promising weight loss medicines in its pipeline. One of them is called olatorepatide. Regeneron licensed this medicine from a China-based company. Olatorepatide mimics the actions of the GLP-1 and GIP hormones, placing it in the same broad category as Eli Lilly's market-leading drug, Zepbound.

However, olatorepatide could be particularly attractive for one reason: It appears to display better gastrointestinal (GI) tolerability than competing medicines. In a Phase 3 study conducted in China, olatorepatide led to a mean weight loss of up to 19% over 48 weeks. That's already impressive enough.

But as Regeneron pointed out, olatorepatide also had lower rates of GI-related adverse events -- such as nausea and vomiting -- than what some competing drugs achieved in comparable Phase 3 studies. Regeneron still has to run late-stage clinical trials in the U.S. before it can earn approval in the country.

However, olatorepatide's strong performance in Chinese studies makes it a notable contender in the weight loss market. Regeneron's other leading candidate is trevogrumab. This isn't a drug designed to induce weight loss. Rather, Regeneron is developing trevogrumab to be administered alongside anti-obesity medicines to help patients preserve lean mass as they lose weight.

In a Phase 2 study, trevogrumab, administered alongside Novo's semaglutide, led to lean mass preservation of up to 42.5% compared with just 7.3% in patients receiving semaglutide plus placebo. Trevogrumab is yet another differentiated product that could help Regeneron carve out a niche in the rapidly growing weight loss market.

More reasons to buy the stock

Of course, there is much more to Regeneron's business than its weight loss candidates. The company's main growth driver, Dupixent, a medicine for eczema that it co-markets with Sanofi (NASDAQ:SNY), continues to perform well.

In the second quarter, Regeneron's revenue increased by 17% year over year to $4.3 billion. Dupixent's global sales (recorded by Sanofi) increased 38% year over year to $6 billion. It is helping Regeneron overcome biosimilar competition for Eylea, a medicine approved for several eye-related conditions, including wet age-related macular degeneration.

Regeneron's newer, higher-dose (HD) formulation of Eylea is helping keep the franchise afloat, at least somewhat. Second-quarter combined U.S. revenue from Eylea and Eylea HD declined 12% year over year to $1 billion. But HD Eylea's U.S. sales came in at $596 million, up 52% year over year.

The newer version of the drug comes with fewer injections per year. More convenient dosing can attract new patients while also prompting existing Eylea patients to switch. So, this franchise, despite recent struggles, isn't exactly dead in the water. Regeneron has other products that are contributing to sales growth, particularly Libtayo, a cancer medicine.

And the biotech boasts an attractive pipeline beyond its weight-loss products, including promising anticoagulants being developed to lower the bleeding risk associated with today's anticoagulants. Regeneron has underperformed the broader market over the past two years amid competition for Eylea, but the company is bouncing back, and, given its current approved lineup and pipeline, it could perform well over the medium term. The company's weight loss products may be a key part of the business within five years.

Prosper Junior Bakiny has positions in Eli Lilly and Novo Nordisk. The Motley Fool has positions in and recommends Eli Lilly, Novo Nordisk, and Regeneron Pharmaceuticals. The Motley Fool has a disclosure policy.