One of the biggest tailwinds in the pharmaceutical industry is weight loss treatments. Breakthroughs in semaglutide and tirzepatide have given rise to several glucagon-like peptide-1 (GLP-1) medications, including Ozempic, Rybelsus, Wegovy, Mounjaro, and Zepbound.
While that is a long list of treatments, only two companies are the brains behind these blockbuster drugs: Novo Nordisk and Eli Lilly.
Recently, a smaller company called Viking Therapeutics made waves in the weight loss scene following a successful phase 2 trial for its obesity candidate VK273.
Given Viking is still in development stages, some investors are speculating that the company could be an acquisition target. Pfizer (NYSE: PFE) has been listed as a potential suitor, given the company’s struggles to enter the weight loss market.
Could Pfizer be on the verge of another breakthrough? Let’s assess the possibilities.
What’s the deal?
Right now, Novo Nordisk and Eli Lilly dominate the weight loss market. However, J.P. Morgan suggests the GLP-1 market could eclipse $100 billion by 2030. Moreover, data compiled by the International Diabetes Federation shows that by 2045 there could be 1 billion adult diabetics worldwide.
Not only are diabetes and obesity care enormous markets, but the underlying growth forecasts suggest the opportunity could be lucrative over the long run. Furthermore, given the size of the addressable market, it’s likely that Eli Lilly and Novo Nordisk will eventually face more competition.
While Viking is not yet approved to commercialize VK273, the company could be the most realistic threat to Lilly and Novo so far.
Pfizer could be interested, but…
The last several years have been interesting for Pfizer. The company played a monumental role in developing a vaccine to combat COVID-19. Unsurprisingly, demand for Pfizer’s COVID-19 products soared — leading to record sales for the pharma giant.
However, as pandemic concerns subside, Pfizer has been hard-pressed to reignite growth. The company has tried to enter the red-hot weight loss space, but has ultimately failed to make any inroads.
…I don’t think it’ll happen
There are two main reasons why I don’t think Pfizer will buy Viking.
First, the company just 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 size of this transaction, I surmise Pfizer is looking at complicated and long integration efforts. As such, pursuing any further acquisitions could distract from current priorities.
On top of all of that, Pfizer issued $31 billion of debt in order to finance the Seagen deal. In total, Pfizer now holds over $70 billion of debt on its balance sheet.
It’s not atypical for pharmaceutical companies to carry a lot of debt on the balance sheet. After all, bringing new medications to the market is a timely effort that requires significant costs related to research and development.
However, given what’s at stake with Seagen, I would think Pfizer isn’t looking to take on any more loans to finance further transactions. Moreover, any excess cash flow the company generates will likely be used to retire current debt or maintain the dividend — as opposed to reinvesting in strategic opportunities such as acquisitions.
Will Pfizer acquire Viking? Maybe, but I see it as highly unlikely right now. The company has a lot going on from an operational standpoint and the priority should be to legitimize the Seagen deal above all else. Moreover, while Viking appears to have some momentum, there is no guarantee that the company’s obesity drug will reach commercialization.
I think a more prudent approach is to monitor Viking’s progress through clinical trials. Should the company be approved for its obesity drug, Pfizer may want to consider an acquisition at that point. Of course, this would be more expensive, but it would also come with less speculation.
Overall, I think Pfizer is best off tabling its pursuit of the weight loss market, remaining focused on its core offerings, and bolstering its oncology services.
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JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. Adam Spatacco has positions in Eli Lilly and Novo Nordisk. The Motley Fool has positions in and recommends JPMorgan Chase and Pfizer. The Motley Fool recommends Novo Nordisk. The Motley Fool has a disclosure policy.
Prediction: Pfizer Won’t Acquire Viking Therapeutics. Here’s Why. was originally published by The Motley Fool
Source: finance.yahoo.com