When there's a new gold rush in an area of biopharma, it often makes sense to diversify your bets as the probability of failure by any individual aspiring drug developer is likely quite high.
On that note, you've probably heard of Novo Nordisk's (NVO +0.00%) blockbuster drug for type 2 diabetes called Ozempic, which it also markets under the name Wegovy as a treatment for obesity. Ozempic was worth $8.5 billion in sales in 2022, and it's just getting started -- but there's a deluge of competing products attempting to enter the same market over the next few years.
Enter Structure Therapeutics, (GPCR 2.80%) one of those small-but-enterprising competitors attempting to make medicines that'll contest Ozempic's niche. Simply by dint of being a much smaller company without any revenue, even a modest success with its candidate could lead to a home run for shareholders. But that entails a handful of risks that should guide your decision about whether or not to buy it.
So let's analyze what's going on to see if this stock is up your alley.
NASDAQ: GPCR
Key Data Points
It's not just trying to make another Ozempic
For the uninitiated, Ozempic is just one formulation of Novo Nordisk's molecule semaglutide, which is part of a class of medicines called glucagon-like peptide 1 (GLP-1) agonists. Don't worry too much about what that means; just appreciate that GLP-1-targeted drugs like semaglutide can potentially treat both diabetes and obesity, not to mention potentially a few other conditions that are under investigation. That's how Novo is able to market three different formulations of semaglutide under the trade names Ozempic, Wegovy, and Rybelsus, even though they all contain the same active ingredient.
Structure Therapeutics is aiming to make a GLP-1 agonist molecule of its own. Its lead candidate, GSBR-1290, is currently in phase 2 clinical trials for both obesity and type 2 diabetes. It also has a discovery-phase program that it claims is a "next gen" candidate that affects both GLP-1 and another biological target, gastric inhibitory polypeptide receptors (GIPR).
There's evidence that suggests that this two-target approach could result in superior weight loss characteristics compared to a therapy aiming for GLP-1 alone. In fact, Eli Lilly's drug Mounjaro is already on the market for diabetes, aiming at those same targets.
So Structure's next-gen approach could potentially be even more effective than its own lead candidate, as well as Ozempic and perhaps other similar medicines that are on the market or on the way. That bodes well for its chances of being a good investment over the next five years or so. But now let's investigate the risks.
NYSE: NVO
Key Data Points
There are quite a few risks to navigate
Structure Therapeutics is a pre-revenue biotech stock, which means that it's living on borrowed time. If it can't move one of its pipeline programs to the market and generate a tidy return, it'll run out of money and need to shut down. And the clinical trial process is fraught with risk as candidates often fail to live up to regulators' standards for efficacy and safety. So the baseline for thinking about an investment is understanding that the risk of falling short are high, and the consequences of falling short could mean losing most or all of your investment.
With that said, this company had $240 million in cash as of the end of Q1, which management says is enough to last it through the end of 2025 at its current pace of research and development (R&D) expenditures. Given that it burned only $46 million in 2022, that estimate appears to be on the conservative side, which isn't a bad thing. Plus, as it doesn't have any debt, it could probably borrow if it needed more money anyway.
The more significant risk is that if it succeeds in commercializing GSBR-1290 within the next few years, it'll be showing up late to the market and then slugging it out with some of the most powerful biopharma businesses that exist when it tries to secure some market share. Novo Nordisk, Eli Lilly, and other heavyweight competitors like Pfizer have vast R&D, manufacturing, marketing, and distribution resources that they'll be bringing to bear to squeeze as much money out of their new medicines as possible. And beyond those companies, there's no shortage of smaller biotech players like Viking Therapeutics looking to enter the market too.
In short, Structure Therapeutics has no obvious competitive advantages to help it, assuming it gets its candidates commercialized at all. Even developing a drug that's proven to be safer and more effective than the competing options might not be sufficient to carry it to victory.
Nonetheless, investors who bet on these somewhat long odds could see tremendous upside if the biotech manages to secure a niche. Going from zero in sales to any higher number for the first time tends to cause stocks to go up. But unless you're normally comfortable with betting on such risky plays, it's probably better to steer clear. There aren't any serious problems with Structure itself at the moment; it's just that it's the underdog, and there are safer places to park your money.
