A few years ago, Eli Lilly (NYSE: LLY) was far from the hottest stock in the biopharmaceutical world. But times have changed. Today, Lilly is the world’s largest healthcare company. It still has huge growth prospects with its drugs for diabetes, obesity and Alzheimer’s.
Is Lilly the best stock for healthcare investors right now? No. Forget Eli Lilly. Here are three biotech stocks to buy instead.
1. Amgen
You may be surprised to see Amgen (NASDAQ: AMGN) on a list of better biotech stocks to buy than Eli Lilly. While Lilly’s shares are up more than 50% this year, Amgen is up only a high single-digit percentage. Amgen also reported a net loss in the first quarter of 2024 on a generally accepted accounting principles (GAAP) basis.
Amgen blows Lilly away on one important front, though: valuation. The stock trades at less than 16.2 times forward earnings. Meanwhile, Lilly’s forward earnings multiple is a sky-high 66.7.
Certainly, Lilly should have stronger growth prospects, thanks in large part to rising sales of Mounjaro and Zepbound. That puts the drugmaker’s lofty valuation in perspective. But Amgen also has decent growth potential: 10 of the company’s products generated double-digit volume growth in the first quarter. The company also has a full pipeline, with 25 programs in late-stage development.
Amgen also beats Lilly on dividends. Lilly’s forward dividend yield is 0.6%, a fraction of Amgen’s yield of 2.9%.
2. Vertex Pharmaceuticals
Much of Eli Lilly’s expected growth has already been priced into the stock price, but I don’t think this will happen Vertex Pharmaceuticals (NASDAQ: VRTX)Granted, Vertex’s forward earnings multiple of 29 is relatively high. However, its price-to-earnings-to-growth (PEG) ratio is a low 0.6, which reflects an attractive valuation.
Part of Vertex’s growth will come from its core market of cystic fibrosis (CF). The company has a monopoly on treating the underlying cause of the rare genetic disease. It could soon expand that monopoly with the upcoming U.S. and European approvals of a triple CF combo with vanzacaftor.
The bulk of Vertex’s growth, however, is likely to come from non-CF drugs. The company is ramping up the commercial launch of Casgevy for the treatment of sickle cell disease and transfusion-dependent beta-thalassemia. The biotech powerhouse could also seek U.S. approval for suzetrigine for acute pain in the first half of 2025.
Vertex is evaluating inaxaplin in a Phase 3 trial targeting APOL1-mediated kidney disease (AMKD). There are no approved therapies that treat the underlying cause of AMKD, and it affects more patients than CF. Vertex’s pending acquisition of Alpine Immune Sciences will give it another late-stage candidate, povetacicept, which targets the rare kidney disease IgA nephropathy.
3. Viking Therapeutica
Unlike Lilly, Amgen and Vertex, Viking Therapeutics (NASDAQ: VKTX) has no approved products on the market yet. And Viking is still not profitable. With a market cap of less than $6 billion and a promising pipeline, however, this biotech stock could have the most room to rise.
Earlier this year, Viking announced dramatic results from a Phase 2 study of its investigational obesity drug VK2735. The dual GLP-1/GIP receptor agonist achieved greater weight loss after 13 weeks of treatment than Lilly’s tirzepatide (branded as Mounjaro and Zepbound) and New Nordisksemaglutide (marketed as Ozempic and Wegovy) performed well in clinical trials.
If VK2735 is successful in Phase 3 testing and subsequently receives regulatory approval, Viking will almost certainly be worth a lot more than it is today. And that drug isn’t the only potential big winner in the company’s pipeline. Viking’s VK2809 is in Phase 2 testing as a treatment for nonalcoholic steatohepatitis (NASH). Some analysts predict that the market for NASH therapy could exceed $100 billion, rivaling the market for obesity drugs.
Should You Invest $1,000 in Amgen Now?
Before you buy Amgen stock, you should consider the following:
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Keith Speights has positions in Vertex Pharmaceuticals. The Motley Fool has positions in and recommends Vertex Pharmaceuticals. The Motley Fool recommends Amgen and Novo Nordisk. The Motley Fool has a disclosure policy.
Forget Eli Lilly: 3 Biotech Stocks You Should Buy Instead was originally published by The Motley Fool
