This IPO Biotech Stock Could Be the Next Eli Lilly

Eli Lilly's (NYSE: LLY) stock is up by more than 736% over the last five years, largely thanks to its best-selling medicines for type 2 diabetes and obesity. And while it likely has plenty of upside remaining, it's also true that finding a winning stock is easier when you get in earlier rather than once the word's out.

In that vein, there's a biotech stock called BioAge Labs (NASDAQ: BIOA) that just wrapped up its initial public offering (IPO) and is aiming to compete in the same areas as Lilly, as well as one potentially very lucrative field in the future: Anti-aging medicines. If its efforts bear fruit, its shares might even go on a tear like Lilly's did. It's already off to a running start, so here's what you need to know.

There are a lot of factors in this biotech's favor

On Sept. 25, BioAge's stock proceeded with its IPO, which raised gross proceeds of $238.3 million. Before the IPO, it had raised $321 million via several rounds of funding with private investors and venture capital (VC) firms. As its trailing-12-month (TTM) operating expenses are just $51.5 million, it will have a fairly big cash cushion to pay for its research and development (R&D) needs.

In terms of its strategy, BioAge is looking to tap into the successes of the cardiometabolic medicines produced by Eli Lilly and its competitor Novo Nordisk by testing its lead program in conjunction with the blockbuster drugs made by those companies. That program, called azelaprag, is already in a pair of phase 2 clinical trials for treating obesity in an oral formulation. The point of testing it in combination with the drugs made by its competitors is that there is already some evidence that azelaprag could build on the positive effects of those medicines while cutting down on some of the more problematic side effects. That's also why the company is an exciting investment opportunity.

In short, people who take Lilly's drug Zepbound or Novo Nordisk's drug Wegovy for weight loss tend to lose a lot of their muscle mass during treatment. Especially in elderly people, that can lead to a lower quality of life. BioAge claims that treatment with azelaprag could help those patients to preserve their muscle mass while also facilitating more weight loss. That could easily make it a winner, considering how many people are bound to be taking those weight loss medicines over the coming years.

But that's not even the juiciest bite of meat on the bone, if the company's claims are to be believed.

The cellular mechanism by which azelaprag exerts its effects is the apelin receptor. According to BioAge, activating that receptor leads to physiological effects that are ultimately very similar to those produced by doing physical exercise. As a result, higher apelin levels may lead to better physical function as well as longevity and a longer health span too. There do not appear to be major side effects documented in the (minimal) available clinical evidence.

It is difficult to even assess how large of a market such a candidate could capture if commercialized someday for the (speculative) purposes of exercise replacement or health maintenance in aging individuals. Even if it's only marketed for weight loss, azelaprag could easily be a category leader if it truly does cause the same effects of exercise.

In summary, this drug candidate's demand could reasonably be tied to that of Zepbound and Wegovy.

Big claims require big evidence

BioAge is, without a doubt, a very promising biotech stock in this moment. But that doesn't make it a good investment for everyone.

It's still prerevenue, and it probably won't have any medicines on the market for years, if it ever does. It will likely need to raise more capital by issuing more shares at some point in the future, which will dilute its shareholders.

Furthermore, azelaprag still has clinical trials to complete, and it would need to fight for market share against powerful incumbents if drug regulators ever approve it for sale. At this juncture, it is easy to see how, the hype about its potential utility as an exercise replacement could get out of hand and drive its stock to an unsustainably high valuation over the short term, only to be demolished by the likely less-than-ideal reality revealed by further clinical data. Remember, there's a difference between a company's marketing claims and its actual scientific results.

Still, longevity-enhancing medicines are going to be a major segment in biopharma, and soon. Likewise, creating an adjunct to the current cardiometabolic treatments that diminish their undesirable effects is probably an approach that can bring in billions. And it's plenty well-funded for now.

For investors comfortable taking high risks, BioAge stock is one they'll want to buy sooner rather than later. If, however, the uncertainty is too much to stomach, there are better investing options in the stock market.

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Alex Carchidi has no position in any of the stocks mentioned. The Motley Fool recommends Novo Nordisk. The Motley Fool has a disclosure policy.