It’s widely recognized that the surge in popularity of weight-loss medications is significantly benefiting numerous companies financially, and this boom is only beginning. Developers of weight-loss drugs, such as the Danish biotechnology firm, are among those profiting. Zealand Pharma ( ZLDP.F 0.65% ) are expected to be the upcoming major successes now that key figures such as Novo Nordisk and Eli Lilly have a strong presence in the market.
Here’s why purchasing this biotech company’s stock sooner rather than later is a wise decision.
Having a lot of cash and a robust pipeline makes it an obvious choice.
Typically, investing in a biotech company like Zealand is most beneficial before it profits from launching its initial product. However, this situation is somewhat unique. In the first six months of 2024, Zealand Pharma generated $7.2 million in revenue, which came from partnerships in drug development, royalties, and licensing fees for its already marketed pharmaceutical assets, rather than from the direct sale of its medications.
In contrast to many other biotech companies, Zealand intends to keep doing innovation and improvement activities focus on creating new assets that can be licensed to larger companies for production and sales. This approach allows it to earn more royalties and milestone payments without the need to invest in manufacturing or distribution infrastructure. While this business model might diminish the impact of catalysts such as drug approvals (or rejections by regulators), its benefits from commercialized products are somewhat restricted compared to a typical biotech company.
The company is dedicated to creating medications for combating obesity, although it also has two treatments for rare diseases that are under regulatory review for approval. The main focus of their current work is on a molecule named survodutide, which is undergoing phase 3 clinical trials. This molecule is being studied for its potential to treat both obesity and metabolic-associated steatohepatitis (MASH, formerly referred to as NASH).
Survodutide stands out due to its mechanism of action involving the GLP-1 receptor, which is somewhat similar to the products offered by Eli Lilly and Novo Nordisk. However, it also targets the glucagon receptor, a feature not found in other available options. This dual targeting could allow Survodutide to fill a niche that current products do not adequately address.
Notably, the phase 2 trial results for survodutide suggest it might be particularly successful in addressing the toughest symptoms of MASH. In the trial, 64.5% of patients with moderate-to-severe liver fibrosis showed a reduction in their level of scarring following treatment.
Another medication, petrelintide, is progressing towards phase 2 trials and shows great promise in treating obesity. This drug employs two unique mechanisms that are not found in currently available weight-loss medications. Early data indicates that petrelintide might be easier for patients to tolerate compared to existing drugs, while also leading to more significant weight loss. This effect is probably due to a decreased appetite and a heightened feeling of fullness after meals.
It’s unlikely that Zealand will face difficulties in securing the funding required for advancing its programs through clinical trials. In the second quarter, the company successfully completed a stock offering that generated more than $1 billion in cash. This is an enormous sum, one that most biotech companies could only dream of obtaining, even in the later stages of drug development.
The benefit of having this substantial amount of money goes beyond simply covering expenses. With such a significant cash reserve, Zealand can be very selective when negotiating agreements with major pharmaceutical partners during the licensing stage. Essentially, if a potential commercial partner demands too large a share, the biotech company can confidently explore other options without feeling pressured, as it is not close to exhausting its funds.
This should lead to signing improved agreements that produce higher profits than they would have otherwise.
The potential negative risks differ from those associated with other biotech companies.
Zealand Pharma’s stock is a good option to purchase today, and it doesn’t carry the same level of risk as others. biotech stocks due to several factors.
Firstly, it possesses sufficient cash to support further research and development efforts if one of its initiatives encounters a problem or needs to be completely shut down. This means it will have several opportunities to get its medications approved for sale before having to consider securing additional funding.
Secondly, the company’s business strategy involves transferring the expenses related to manufacturing and commercialization to large pharmaceutical partners. This approach shifts the majority of the execution risk in these areas to more experienced entities that already possess the necessary resources and connections.
Third, the company’s pipeline programs generally avoid mimicking the strategies of its bigger rivals. While it’s true that employing unique mechanisms of action carries some extra risk due to the limited information on potential side effects and challenges to effectiveness, it also means that any successful candidates will stand out sufficiently to compete with established players in the market.
In summary, if you’re seeking a weight-loss drug stock with moderate risk and potential for significant growth, Zealand Pharma is a strong option, particularly if you tend to be cautious about investing in biotech stocks.
