Novo Is Open to Acquisitions. Here Are 2 Companies That Would Be Great Candidates to Buy

Novo Nordisk (NYSE: NVO) has a problem. The company generates most of its revenue from its diabetes and obesity products, but stiff competition from Eli Lilly (NYSE: LLY) in these markets has significantly disrupted its business. To make matters worse, other drugmakers will launch brand-new products in this field over the next few years. Novo Nordisk could struggle even more in a more competitive environment.

To Novo Nordisk's credit, the company has a fairly attractive pipeline, but it could expand it through licensing deals or acquisitions. In fact, Novo recently acquired three obesity assets from Kallyope, a privately held biotech. Could the pharmaceutical giant acquire smaller companies to further beef up its pipeline? If Novo does decide to go that route, here are two companies that could be great targets: Kailera Therapeutics (NASDAQ: KLRA) and Viking Therapeutics (NASDAQ: VKTX).

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1. Kailera Therapeutics

Kailera Therapeutics went public earlier this year in what, at the time, broke the record for the largest biotech IPO in history. It's not hard to understand why. Kailera has a pipeline of multiple weight-loss candidates that it licensed from a China-based company. Some of Kailera's attractive candidates include ribupatide, a medicine that mimics the actions of the GLP-1 and GIP hormones, which is being developed in subcutaneous and oral formulations. Ribupatide is being tested in obesity and diabetes. The subcutaneous version is undergoing a Phase 3 study in weight loss for which we should have data in 2028.

We have already seen results from some of ribupatide's studies, including those conducted in China. And so far, it looks promising. Kailera's pipeline also includes KAI-7535, an investigational oral weight-loss medicine undergoing a global Phase 2 obesity study. Then there is KAI-4729, a medicine that mimics the action of three gut hormones: GLP-1, GIP, and glucagon.

This approach could potentially produce substantial weight loss, as Eli Lilly has demonstrated with its own triple agonist, retatrutide, which has posted impressive Phase 3 results. Of course, Eli Lilly's success doesn't guarantee that KAI-4729 will follow in its footsteps, but Kailera has several highly promising pipeline candidates and could be a great acquisition target for any company looking to improve its position in this space. So, perhaps Novo might take a second look at Kailera.

2. Viking Therapeutics

Viking Therapeutics is proving to be a notable contender in the weight-loss market. The company's subcutaneous VK2735 posted excellent Phase 2 results and is now undergoing two Phase 3 clinical trials. Viking Therapeutics is also developing an oral formulation of this medicine and plans to begin late-stage studies soon. Further, earlier this year, Viking started Phase 1 studies for a newer weight loss drug called VK3019. This medicine mimics the actions of the hormones amylin and calcitonin.

In theory, Viking Therapeutics could combine VK2735 with VK3019 to target four hormone pathways, though we are a long way from that. Still, the possibility is enticing and one of the factors that makes Viking an attractive acquisition target. Here's another: The company recently posted excellent results in a maintenance study for subcutaneous VK2735.

After about five months of weekly doses of the medicine, during which patients lost between 16% and 19% of their weight, they switched to either monthly or every-other-week dosing, which helped keep significantly more weight off than those who took a placebo over 12 weeks. Viking's pipeline looks increasingly promising and could help Novo Nordisk strengthen its portfolio.

What does the future hold?

Of course, we can't be sure that Novo Nordisk will acquire either one of these companies. It might go for a different biotech company focused on weight-loss medicines, or it may even choose to diversify its lineup and pipeline -- something management has highlighted as a priority -- by acquiring a company with a completely different specialization.

Importantly, Novo's own weight loss and diabetes pipeline is strong. Phase 3 assets like zenagamtide look promising, and it boasts several other exciting candidates, including UBT251, a triple agonist.

Novo looks likely to remain a leader in this area even without an acquisition, and provided it can post excellent clinical trial results for leading candidates over the next couple of years, its shares could soar. The company also runs the risk of clinical setbacks, but given the depth of its pipeline and its financial flexibility, which enables it to pursue acquisitions or licensing deals, Novo's shares are attractive at current levels.

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