One of many greatest tailwinds within the pharmaceutical trade is weight reduction therapies. Breakthroughs in semaglutide and tirzepatide have given rise to a number of glucagon-like peptide-1 (GLP-1) drugs, together with Ozempic, Rybelsus, Wegovy, Mounjaro, and Zepbound.
Whereas that may be a lengthy checklist of therapies, solely two corporations are the brains behind these blockbuster medicine: Novo Nordisk and Eli Lilly.
Not too long ago, a smaller firm known as Viking Therapeutics made waves within the weight reduction scene following a profitable section 2 trial for its weight problems candidate VK273.
Given Viking remains to be in improvement levels, some traders are speculating that the corporate may very well be an acquisition goal. Pfizer (NYSE: PFE) has been listed as a possible suitor, given the corporate’s struggles to enter the burden loss market.
Might Pfizer be on the verge of one other breakthrough? Let’s assess the chances.
What is the deal?
Proper now, Novo Nordisk and Eli Lilly dominate the burden loss market. Nevertheless, J.P. Morgan suggests the GLP-1 market might eclipse $100 billion by 2030. Furthermore, knowledge compiled by the Worldwide Diabetes Federation reveals that by 2045 there may very well be 1 billion grownup diabetics worldwide.
Not solely are diabetes and weight problems care monumental markets, however the underlying development forecasts recommend the chance may very well be profitable over the long term. Moreover, given the scale of the addressable market, it is doubtless that Eli Lilly and Novo Nordisk will finally face extra competitors.
Whereas Viking is just not but accepted to commercialize VK273, the corporate may very well be essentially the most practical risk to Lilly and Novo to this point.
Pfizer may very well be , however…
The final a number of years have been attention-grabbing for Pfizer. The corporate performed a monumental position in growing a vaccine to fight COVID-19. Unsurprisingly, demand for Pfizer’s COVID-19 merchandise soared — resulting in report gross sales for the pharma large.
Nevertheless, as pandemic considerations subside, Pfizer has been hard-pressed to reignite development. The corporate has tried to enter the red-hot weight reduction area, however has finally didn’t make any inroads.
…I do not suppose it’s going to occur
There are two principal the reason why I do not suppose Pfizer will purchase Viking.
First, the corporate simply closed its acquisition of oncology specialist Seagen in December. As a reminder, this was not a small-scale deal. Pfizer paid a whopping $43 billion for Seagen.
Given the scale of this transaction, I surmise Pfizer is difficult and lengthy integration efforts. As such, pursuing any additional acquisitions might distract from present priorities.
On high of all of that, Pfizer issued $31 billion of debt to be able to finance the Seagen deal. In complete, Pfizer now holds over $70 billion of debt on its steadiness sheet.
It is not atypical for pharmaceutical corporations to hold numerous debt on the steadiness sheet. In any case, bringing new drugs to the market is a well timed effort that requires vital prices associated to analysis and improvement.
Nevertheless, given what’s at stake with Seagen, I’d suppose Pfizer is not seeking to tackle any extra loans to finance additional transactions. Furthermore, any extra money circulate the corporate generates will doubtless be used to retire present debt or keep the dividend — versus reinvesting in strategic alternatives equivalent to acquisitions.
Will Pfizer purchase Viking? Perhaps, however I see it as extremely unlikely proper now. The corporate has so much happening from an operational standpoint and the precedence must be to legitimize the Seagen deal above all else. Furthermore, whereas Viking seems to have some momentum, there isn’t a assure that the corporate’s weight problems drug will attain commercialization.
I feel a extra prudent method is to watch Viking’s progress via scientific trials. Ought to the corporate be accepted for its weight problems drug, Pfizer might need to contemplate an acquisition at that time. After all, this is able to be costlier, however it will additionally include much less hypothesis.
General, I feel Pfizer is finest off tabling its pursuit of the burden loss market, remaining centered on its core choices, and bolstering its oncology companies.
Do you have to make investments $1,000 in Pfizer proper now?
Before you purchase inventory in Pfizer, contemplate this:
The Motley Idiot Inventory Advisor analyst crew simply recognized what they consider are the 10 finest shares for traders to purchase now… and Pfizer wasn’t one in every of them. The ten shares that made the lower might produce monster returns within the coming years.
Inventory Advisor supplies traders with an easy-to-follow blueprint for fulfillment, together with steerage on constructing a portfolio, common updates from analysts, and two new inventory picks every month. The Inventory Advisor service has greater than tripled the return of S&P 500 since 2002*.
*Inventory Advisor returns as of March 25, 2024
JPMorgan Chase is an promoting associate of The Ascent, a Motley Idiot firm. Adam Spatacco has positions in Eli Lilly and Novo Nordisk. The Motley Idiot has positions in and recommends JPMorgan Chase and Pfizer. The Motley Idiot recommends Novo Nordisk. The Motley Idiot has a disclosure coverage.
Prediction: Pfizer Will not Purchase Viking Therapeutics. This is Why. was initially printed by The Motley Idiot
