Should Pfizer Acquire Viking Therapeutics to Take on Eli Lilly and Novo Nordisk in the Obesity Drug Market?
Two companies stand at the center of the obesity drug market right now. Novo Nordisk continues to rake in money from its weight-loss drug Wegovy (and from off-label usage of its type 2 diabetes drug Ozempic.) Eli Lilly is hot on Novo Nordisk's heels with its new obesity drug Zepbound.
Pfizer (NYSE: PFE) remains on the outside looking in with this big opportunity. But that doesn't have to be the case. Should Pfizer acquire Viking Therapeutics (NASDAQ: VKTX) to take on Lilly and Novo Nordisk in the obesity-drug market?
The downsides of a deal to acquire Viking
Let's first look at the potential downsides to Pfizer acquiring Viking. One especially stands out: Pfizer already has two weight-loss candidates in its pipeline -- danuglipron and PF-07976016. The latter only recently advanced into clinical testing, so it has a long way to go. Danuglipron, though, is farther along in development.
Granted, the safety profile for danuglipron in Pfizer's phase 2 clinical study of the drug wasn't great. More than 50% of patients in the trial dropped out. Up to 73% of participants experienced nausea. However, those results were for a twice-daily dose. Pfizer plans to move forward into late-stage testing with a once-daily dose of the oral obesity drug.
There's also more pipeline overlap between Pfizer and Viking. Pfizer is evaluating ervogastat in phase 2 testing and PF-07853578 in phase 1 testing for the treatment of nonalcoholic steatohepatitis (NASH) with liver fibrosis. Viking has a NASH candidate in phase 2 clinical trials too -- VK2809.
Acquiring Viking would wipe out much of Pfizer's remaining cash stockpile. At the end of 2023, Pfizer's cash, cash equivalents, and short-term investments totaled around $21 billion. If we assume that the company would have to pay at least a 50% premium to Viking's current valuation, a deal would cost Pfizer in the ballpark of $10 billion to $11 billion. The big drugmaker could arguably find better ways to invest its money.
Why Pfizer might consider buying Viking
Despite these objections, Pfizer could still find a buyout of Viking Therapeutics attractive. Why? Danuglipron could flop even with a once-daily dose. Meanwhile, Viking's VK2735 subcutaneous injection sailed through phase 2 testing with fantastic safety and efficacy, and the biotech is evaluating an oral version of the drug in a phase 1 clinical trial.
Some analysts project that the global obesity drug market could reach or even top $100 billion by 2030. That's too big of an opportunity for Pfizer to risk ceding to Lilly and Novo Nordisk. If the company has any qualms about danuglipron, acquiring Viking could be a great backup plan.
Pfizer has been clear that business development is a key part of its growth strategy. The company expects roughly $25 billion in new annual revenue from its dealmaking by 2030. Even with its acquisitions in recent years of Seagen, Arena, Biohaven, and Global Blood Therapeutics, Pfizer is almost certainly still looking for attractive buyout candidates.
I doubt that the overlap of NASH programs would be a big obstacle for Pfizer in acquiring Viking. Neither should price be a significant issue, unless a bidding war erupts between multiple big drugmakers.
The best bet is a "weight-loss wait"
So should Pfizer acquire Viking? I think the company's best bet is what we might call a "weight-loss wait." Pfizer expects to have pharmacokinetic data for danuglipron within the next few months, which should help determine its strategy in moving forward with a once-daily formulation.
But what if another player tries to buy Viking in the meantime? Pfizer could consider other acquisition candidates if it chose not to bid for Viking. For example, Altimmune reported promising results in November 2023 from a phase 2 study evaluating pemvidutide in weight loss. Even after its shares skyrocketed by around 350% over the last six months, Altimmune's market cap is still below $600 million.
I wouldn't rule out the possibility of Pfizer acquiring Viking Therapeutics. However, I wouldn't bet on it either. On the other hand, regardless of what happens next with the big pharma's business development efforts, Pfizer stock rebounding looks like a good bet.
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Keith Speights has positions in Pfizer. The Motley Fool has positions in and recommends Pfizer. The Motley Fool recommends Novo Nordisk. The Motley Fool has a disclosure policy.
Should Pfizer Acquire Viking Therapeutics to Take on Eli Lilly and Novo Nordisk in the Obesity Drug Market? was originally published by The Motley Fool
