Why Viking Therapeutics and Roche Holdings Popped Today, but Novo Nordisk Stock Dropped

Over the past few days, as the rest of the stock market melted down, a revolution has been quietly brewing in the market for GLP-1 weight-loss drugs. Current runners-up Viking Therapeutics (NASDAQ: VKTX) and Roche Holdings (OTC: RHHBY), up 11.3% and 4%, respectively, through 10:05 a.m. ET today, are behind it.

And Novo Nordisk (NYSE: NVO) stock, down 4.9%, is the victim.

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Good news for Viking

Let's start with the background. Currently there are four branded and patent-protected GLP-1 weight-loss drugs on the market. Novo Nordisk owns two of them: Ozempic and Wegovy. Eli Lilly (NYSE: LLY) owns the other two: Mounjaro and Zepbound.

Both Viking and Roche are attempting to horn in on this market, however.

Yesterday, Viking signed a "broad manufacturing agreement" with Germany's CordenPharma to produce for it a "multi-ton annual supply" of Viking's own VK2735 GLP-1 weight-loss drug. VK2735 is still in clinical trials and not yet available for general sale, but Viking seems confident the drug will come to market and has hired CordenPharma to produce for it up to:

• 100 million autoinjectors annually
• 100 million units of vials and syringes for injections
• More than 1 billion oral tablets, for when it gets FDA approval to sell VK2735 in pill form.

Viking told investors that this agreement "provides Viking with sufficient long-term supply of both subcutaneous and oral VK2735 product forms to support a potential multibillion-dollar annual product opportunity." And at the risk of taking Viking's optimism for granted, that means "multibillions" of dollars in sales will soon not be going to Novo Nordisk or Eli Lilly.

And good news for Roche, too

Separately, Roche announced this morning its own "exclusive collaboration & licensing agreement with Denmark's Zealand Pharma to co-develop and co-commercialise petrelintide." (That's a name to remember. Similar to Novo Nordisk's semaglutide and Eli Lilly's tirzepatide, petrelintide mimics a naturally occurring hormone, causing patients to feel full so that they eat less and lose more weight.)

Together with Zealand, Roche will co-develop and co-commercialise petrelintide. The companies plan to sell it both separately and in combination with Roche's CT-388 incretin drug.

Image source: Getty Images.

What this means for Novo Nordisk

Both petrelintide and CT-388, by the way, are still in clinical trials. But the alliance between Roche and Zealand Pharma indicates Roche is still forging ahead and trying to find a way into this market -- and still intends to compete with Novo and Lilly to dominate it.

Indeed, just yesterday Bloomberg reported that Roche has created a new "head for cardiovascular, renal and metabolism" position within its headquarters and poached Morten Lammert, Novo Nordisk corporate vice president for obesity strategy and projects, to fill it.

These two factors combined probably explain why Viking and Roche stocks are up today and Novo Nordisk stock is down.

Image source: Getty Images.

Which of these GLP-1 stocks should you buy?

And now, at last, the question of the hour: How does this recent news affect your strategy of investing in pharmaceutical stocks that manufacture GLP-1 weight-loss drugs? And honestly, I'm not sure it really should.

While Viking's and Roche's drugs hold promise, neither one is on the market yet. And even when they are on the market, they'll be trying to compete with incumbents that already hold large market shares and even larger "mind shares." Unless they are significantly more effective, easier to take, or less expensive (ideally all three), despite their best efforts, Viking and Roche probably aren't going to earn outsize profits.

That means that in Roche, we're still looking at a stock costing nearly 29 times earnings -- paying a decent 3.3% dividend yield, sure, but still basically growing in the mid-single-digits at less than 7% annually. That's not fast enough to justify a 29x P/E ratio, I fear.

Viking's even trickier. Not yet profitable and not expected to earn even pro forma profits before 2029 at the earliest, Viking seems a pretty speculative stock to me. And as some analysts have observed, the fact that Viking is partnering with CordenPharma to manufacture drugs on its own implies that Viking is not looking to sell itself to a larger drug company. That lessens the likelihood of investors receiving a quick cash-out in a mergers-and-acquisitions scenario.

That leaves investors with basically the same two GLP-1 drug stock prospects they began with: Lilly stock, which costs 70 times earnings and pays only a 0.7% dividend, and Novo Nordisk stock, which costs less than 24 times earnings and pays 2.1%! I know which one I would pick.

Do you?

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Rich Smith has no position in any of the stocks mentioned. The Motley Fool recommends Novo Nordisk, Roche Holding AG, and Viking Therapeutics. The Motley Fool has a disclosure policy.