Shares of a little-known biotechnology stock called Metsera (MTSR -0.29%) popped on Monday, Sept. 22, after Pfizer (PFE 0.32%) announced it would be acquiring it for a steep premium. Under the terms of the agreement, Pfizer will spend $47.50 per share, or about $4.9 billion up front.
In addition to an up-front payment that is 43% above the previous trading day's closing price, Metsera shareholders will receive a contingent value rights (CVR) that could be worth up to $22.50 per share, if the anti-obesity candidates Pfizer acquired succeed.
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How a $4.9 billion deal could rise to $7.3 billion
Metsera is developing a glucagon-like peptide-1 (GLP-1) receptor agonist, tentatively named MET-097i, that only requires one injection per month. Today's popular GLP-1 treatments for obesity, Wegovy from Novo Nordisk and Zepbound from Eli Lilly, require weekly injections.
In addition to a monthly GLP-1 injection, Metsera is developing a once-monthly amylin analog called MET-233i that recently produced compelling results in a phase 1 trial. Patients receiving it were 8.4% lighter after just five weeks.
Pfizer could send Metsera CVR holders $5 per share when a phase 3 clinical trial testing a combination of MET-097i and MET-233i begins. If the Food and Drug Administration (FDA) approves monthly MET-097i as a monotherapy, Metsera CVR holders will receive $7 per share. Finally, Pfizer is on the hook for a $10.50 CVR payment if a combination of MET-097i plus MET-233i earns FDA approval.
Pfizer is spending heaps to access Metsera's assets, but the obesity market is large enough to justify the expense. In May, Goldman Sachs issued a relatively conservative estimate for GLP-1 drugs. In 2030, total sales of treatments like Wegovy, Zepbound, and possibly Pfizer's incoming candidates are expected to generate a combined $95 billion in global sales.
Time to buy?
When the market opened on Monday, Sept. 22, shares of Metsera were up more than 60% from their previous closing price. At a price north of $53 per share, the stock is below the total sum Metsera shareholders could receive from Pfizer. That said, it's far above the up-front price Metsera shareholders will receive as soon as the deal closes.
An investment in Metsera now should be avoided unless you're nearly certain that all three CVR conditions can be met. At the moment, betting that MET-097i plus MET-233i can swiftly earn FDA approval as a combination treatment is probably a bigger risk than most investors should be willing to accept.
For Pfizer, paying $4.9 billion up front to access new drug candidates that could help it gain a share of the enormous market for anti-obesity treatments makes perfect sense. Even if MET-097i plus MET-233i fails, there's a chance that MET-097i monotherapy can earn approval and generate enough sales to make the deal worthwhile.
Earlier this year, Metsera announced a placebo-adjusted weight reduction of 11.3% among patients treated with MET-097i for 12 weeks in a phase 2 dosage determination study. The company's novel approach allows MET-097i to bind to albumin, an abundant blood protein that naturally transports a variety of signaling molecules around the body. Binding to albumin allows relatively low doses of MET-097i to remain in the bloodstream at therapeutic levels much longer than Wegovy or Zepbound.
It's a long way from certain yet, but there's a strong chance that MET-097i could differentiate itself with monthly dosing. The relatively low dosages could also translate to improved tolerability. Obesity treatments are often prescribed to relatively healthy people for long-term dosing. Patients might want rapid weight loss, but the physicians who prescribe obesity treatments are far more concerned with tolerability and safety.
Metsera's candidates will boost Pfizer's already robust pipeline of experimental and recently launched products. The big pharma company needs them because it's facing patent cliffs for some of its top-selling treatments. Losing market exclusivity for drugs like Eliquis could reduce annual revenue by $17 billion to $18 billion over the next three and a half years.
Fortunately, Metsera isn't the first big acquisition the company has made to offset upcoming market exclusivity losses. Earlier this year, CEO Albert Bourla told investors that acquired products could generate $20 billion in annual sales by 2030.
At recent prices, Pfizer offers a huge 7% dividend yield. There are no guarantees that acquisitions will offset upcoming patent losses. With Metsera's candidates in its lineup, though, the odds of coming out ahead over the long run with this stock are strong. Adding some shares of the big pharma stock to a diversified portfolio is probably a good move right now.
