Citigroup Says This Obesity Drugmaker's Stock Is Now a Buy

Congratulations are (still) in order for pharmaceutical giants Novo Nordisk (NYSE: NVO) and Eli Lilly (NYSE: LLY). Lilly's Zepbound and Mounjaro along with Novo's Saxenda and Wegovy remain the planet's best-selling weight-loss drugs, collectively generating over $40 billion in revenue last year alone.

Let's face it, though. The drug industry isn't just going to let these two companies dominate this multibillion sliver of the business indefinitely. Rivals are going to take their shot. Some of them are even going to be successful with their entries into this race.

An up-and-comer called BioAge Labs (NASDAQ: BIOA) is one of these would-be rivals. Although it's still very early stage for the mostly pre-revenue and pre-profit anti-obesity outfit -- and therefore still fairly risky for investors -- it's worth noting that analysts with Citigroup have turned firmly bullish on this ticker of late. Let's see why.

BioAge Labs under the microscope

It's not a household name. Indeed, with a market capitalization of less than $300 million, BioAge Labs doesn't turn many heads at all. The fact that a revenue-bearing drug is still years away makes the stock even less remarkable. Yet, as the old adage go, good things can sometimes come in small packages.

Although it's technically got more than one drug trial underway at this time, BioAge is by and large a one-trick-pony right now. That pony is drug candidate BGE-102, currently in phase 1 testing as an orally administered treatment for obesity.

BGE-102 is distinctly different from Novo Nordisk's and Eli Lilly's top-selling weight-management drugs, however. All of their flagship weight-loss drugs are GLP-1 receptor agonists that make your stomach feel "full" to your brain. BioAge Labs' BGE-102, on the other hand, is a NLRP3 sensor inhibitor preventing inflammation that's often linked to increased appetite, slower metabolism, resistance to natural insulin, and even cardiovascular problems.

In other words, it's a different path to the same endpoint and with a similar outcome. A pre-clinical study suggested average weight loss of 15% when BGE-102 is used on its own, and up to 25% weight reduction when used in conjunction with semaglutide -- the generic name for the key component of Novo Nordisk's Wegovy.

Now, it's still early days for the treatment's clinical testing. The phase 1 trial's first patient, in fact, was only dosed in August of this year. This stage of BGE-102's testing (and likely its latter phases as well) should move relatively quickly though, at least compared to most other drug trials you might have followed. The pre-clinical portion of this drug's testing showed the targeted sustained levels of weight loss over the course of just 28 days of treatment.

Following phase 1's initial look at the effectiveness of single ascending doses of BGE-102, for perspective, the company then only needs to administer 14 days' worth of multiple ascending doses to determine the efficacy of that treatment regimen. That's pretty quick by drug development standards, which is how the initial clinical data from this testing is expected to be in hand by the end of this year. That data will then be used to design BioAge's proof-of-concept study, which should be producing top-line data before the end of 2026.

Coming to any sweeping conclusions about the obesity drug's potential efficacy and marketability in the meantime is still, of course, a major leap of faith. And yet, Citigroup is optimistic enough right now to make a bullish case.

What Citigroup says

Citigroup analyst Samantha Semenkow recently upgraded BioAge Labs stock to a buy and also doubled Citi's 12-month price target on the shares to $10.

She writes, "In our assessment, BGE-102 look[s] promising as a potentially differentiated NLRP3 inhibitor that could serve as a combo option with oral GLP1s and/or as a monotherapy," concluding that "given guidance for multiple [obesity products] and third-party data readouts over the next ~12-15 months, we believe it's appropriate to upgrade BIOA."

It's arguably understood that her bullishness is meant to be balanced by the usual nuances of owning any pre-profit and pre-revenue biopharma company. Such names bring above-average risk to the table. Investing in them requires constant monitoring and a willingness to act quickly, since these are often "all or nothing" kinds of positions that are easily pushed around by headlines.

Image source: Getty Images.

She certainly seems right about the catalytic potential of third-party reports from other drugmakers also studying the NLRP3 sensor inhibitors as a pathway to curbed inflammation. Roche, Ventyx Biosciences, Zydus, Novartis, and NodThera are all exploring this relatively new idea, with updates of several early and mid-stage trials due soon. Even if they're not updates on trials of BGE-102, their success -- or even just a lack of danger or failure -- bolsters the bullish thesis for BioAge's chief scientific premise right now.

Not for everyone, but maybe for you

This stock is still not for everyone. Passive buy-and-hold investors who can't afford or stomach the risk of a complete wipeout, for instance, will probably want to steer clear. Too many singularly focused biopharma start-ups hit a funding wall as easily as they do a drug-developmental one. And again, it's going to be years before BioAge Labs even has a shot at generating any real revenue, let alone turning a profit. Much can go wrong in the meantime.

But if you can stomach the inherent risk, Citigroup clearly sees something near term in BioAge's long-term chances of carving out its fair share the worldwide obesity drug market, which Morgan Stanley believes could grow to as much as $150 billion by 2035. Even a small piece of that business would be a pretty big deal for BioAge Labs -- if it can just get to that point in time with an approved weight-loss drug.

This might help put things in perspective: While Citi's Samantha Semenkow is clearly on board, the analyst crowd following this ticker still remains quite small, and neutral overall, with a consensus price target of $8 that's only a few cents above the stock's present price.

Citigroup is an advertising partner of Motley Fool Money. James Brumley has no position in any of the stocks mentioned. The Motley Fool recommends Novo Nordisk and Roche Holding AG. The Motley Fool has a disclosure policy.