One of the biggest themes in the pharmaceutical market right now is weight-loss treatments. Demand is off the charts for medications including Ozempic, Rybelsus, Saxenda, Wegovy, Mounjaro, Jardiance, and Zepbound. That's a long list of treatments, isn't it?
What you might not know, however, is that just two companies, Novo Nordisk (NVO 0.84%) and Eli Lilly (LLY 1.19%), developed all the medications above. Indeed, both companies have made significant inroads in treating diabetes and obesity patients thanks to breakthroughs in compounds known as semaglutide and tirzepatide.
However, an emerging biotech could be on their heels, preparing to disrupt Lilly and Novo Nordisk. Let's dig into the full picture and assess what's going on.
There's a new kid on the block
Viking Therapeutics (VKTX 7.92%) is a small biotech company looking to develop treatments for metabolic and endocrine disorders.
Many other pharmaceutical companies have been trying to enter the red-hot weight-loss market, but just can't seem to get things right. But a few weeks ago, Viking announced positive indications from a phase 2 clinical trial for its dual GLP-1 and GIP receptor agonist VK2735. The hype over the company's obesity candidate caused investors to send shares of Viking soaring.
Image Source: Getty Images
What are some possible outcomes?
Given the success of the phase 2 trial, I see a couple of obvious outcomes for Viking. The first is that the company moves swiftly into a phase 3 trial, and works closely with the Food and Drug Administration (FDA) to bring its obesity candidate to market.
The second possible outcome is more interesting. Given the positive momentum Viking is experiencing, the company may be a ripe acquisition target, with Pfizer (PFE 0.55%) possibly a suitable candidate to buy out Viking.
On the surface, this looks like a pretty good idea: Pfizer has been subject to setbacks as it looks to enter the realm of weight-loss medications. However, should Viking end up getting acquired, I just don't see Pfizer as the buyer.
For one, Pfizer recently completed its takeover of Seagen, a deal that will likely bring mountains of integration efforts that could take years to complete. Second, with $30 billion of newly issued debt on the balance sheet to help fund the Seagen acquisition, I don't think Pfizer is in the best financial position to buy another business right now.
Should you invest in Viking Therapeutics now?
Could Viking pose a threat to Lilly and Novo Nordisk? Maybe one day. But I think the more likely outcome is that if Viking brings its obesity drug to market, it will help spur increasing competition, which could result in further gains for all three pharmaceutical businesses.
The addressable market for GLP-1 treatments could reach $100 billion by 2030, according to research conducted by J.P. Morgan. While Viking's prospects currently look encouraging, it's likely to be years before its obesity drug has met all requirements from the FDA to receive approval. And even if that happens, the size of the market tells me there are likely to be multiple winners in the long run.
One of the most important details to understand about Viking is that the company is still a clinical-stage biotech operation. In essence, it's spending money on research and development in hopes of bringing a blockbuster drug to market. But with no tangible revenue, Viking remains speculative right now.
By contrast, Eli Lilly and Novo Nordisk are already established players in the diabetes and obesity-care markets. I see both of those companies as safer and higher-conviction opportunities for investors interested in the weight-loss market.
