2 Beaten-Down GLP-1 Stocks to Buy on the Dip

The GLP-1 market is currently one of the fastest-growing areas in the pharmaceutical industry. It's not surprising, then, that many drugmakers -- big and small -- are looking to capitalize on this. But which stocks should investors buy to ride this wave? Let's consider two options: Novo Nordisk (NYSE: NVO) and Kailera Therapeutics (NASDAQ: KLRA). Neither company has performed well lately, but they could still be attractive picks for investors looking to cash in on the rapid growth of the GLP-1 space.

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1. Novo Nordisk

Novo Nordisk is a leader in the GLP-1 market, but the company has experienced several clinical setbacks over the past 18 months. Its financial results have also worsened due to stiff competition from Eli Lilly (NYSE: LLY). However, Novo Nordisk may be slowly turning things around. In January, it launched oral Wegovy, the first weight loss pill approved in the U.S. Oral Wegovy has been a smashing success, including among people who had never taken GLP-1 medicines before, who account for more than 80% of prescriptions.

The pill has exceeded three million prescriptions in the U.S., and recently earned approval in the European Union, where it could also see strong adoption. Oral Wegovy helped Novo Nordisk post better-than-expected first-quarter results. Elsewhere, Novo Nordisk has several highly promising candidates that could improve its portfolio over the next few years. The company's pipeline includes a pair of triple agonists, that is, medicines that mimic the action of three separate gut hormones.

Here's why this could be a big deal. Eli Lilly's Zepbound, the best-selling anti-obesity therapy on the market right now, is a dual agonist, meaning it activates two hormone receptors, GLP-1 and GIP. This dual approach is part of the reason it has proved more effective than the original Wegovy. Activating three distinct hormones could further boost efficacy. Novo Nordisk's UBT251, one of its triple agonists, which it is developing in collaboration with a China-based company called The United Laboratories International Holdings Limited, has already shown strong results in phase 2 studies.

And the pharmaceutical leader has other attractive candidates beyond that one. Given its long-standing leadership in the GLP-1 market, Novo Nordisk should be able to capitalize on the increased demand for these medicines over the medium term. The company may be down 29% over the past year, but its shares are worth buying at current levels.

2. Kailera Therapeutics

Kailera Therapeutics went public in April, and since then, the stock has declined by 23%. On the one hand, the biotech is a fairly risky stock. Kailera doesn't have a single product on the market right now, and clinical or regulatory setbacks could sink its share price even more. However, for investors comfortable with heightened risk and volatility, Kailera Therapeutics is an intriguing way to try to capitalize on the GLP-1 boom.

The company's pipeline features KAI-9531 -- a dual GLP-1 and GIP agonist it is developing in both oral and subcutaneous formulations. It is also developing KAI-4729, a triple agonist, and KAI-7535, an investigational oral GLP-1 product.

Significant progress with these programs over the next few years could jolt the stock, and the company is already making headway. Kailera Therapeutics recently announced that oral KAI-7535 had posted strong phase 3 results, albeit in China. The medicine led to a mean weight loss of up to 11.1% after 50 weeks of treatment. It also helped patients with type 2 diabetes meaningfully lower their blood sugar levels.

Kailera Therapeutics will need to complete late-stage clinical trials in the U.S. before it can earn approval for KAI-7535, but the company's programs across the board look highly promising. And with a market cap of $2.5 billion, Kailera Therapeutics does not need to post significantly better efficacy results with its candidates than the likes of Eli Lilly and Novo Nordisk to be successful and see its share price soar. Results that are "good enough" and offer competitive differentiation could enable it to capture a meaningful slice of the market and deliver solid returns over the next few years.

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