One of many largest tailwinds within the pharmaceutical trade is weight reduction remedies. Breakthroughs in semaglutide and tirzepatide have given rise to a number of glucagon-like peptide-1 (GLP-1) medicines, together with Ozempic, Rybelsus, Wegovy, Mounjaro, and Zepbound.
Whereas that could be a lengthy checklist of remedies, solely two firms 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 phases, 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.
May 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 exhibits 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 dimensions of the addressable market, it is probably that Eli Lilly and Novo Nordisk will ultimately face extra competitors.
Whereas Viking just isn’t but authorized to commercialize VK273, the corporate may very well be probably the most sensible 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 function in growing a vaccine to fight COVID-19. Unsurprisingly, demand for Pfizer’s COVID-19 merchandise soared — resulting in file gross sales for the pharma big.
Nevertheless, as pandemic issues subside, Pfizer has been hard-pressed to reignite development. The corporate has tried to enter the red-hot weight reduction house, however has finally did not make any inroads.
…I do not suppose it’s going to occur
There are two foremost explanation 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 dimensions of this transaction, I surmise Pfizer is taking a look at difficult and lengthy integration efforts. As such, pursuing any additional acquisitions might distract from present priorities.
On prime of all of that, Pfizer issued $31 billion of debt with a view to finance the Seagen deal. In complete, Pfizer now holds over $70 billion of debt on its steadiness sheet.
It isn’t atypical for pharmaceutical firms to hold a variety of debt on the steadiness sheet. In any case, bringing new medicines to the market is a well timed effort that requires important prices associated to analysis and improvement.
Nevertheless, given what’s at stake with Seagen, I might suppose Pfizer is not trying to tackle any extra loans to finance additional transactions. Furthermore, any extra money move the corporate generates will probably be used to retire present debt or preserve the dividend — versus reinvesting in strategic alternatives resembling acquisitions.
Will Pfizer purchase Viking? Possibly, however I see it as extremely unlikely proper now. The corporate has rather a lot 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 any assure that the corporate’s weight problems drug will attain commercialization.
I believe a extra prudent method is to observe Viking’s progress by means of scientific trials. Ought to the corporate be authorized for its weight problems drug, Pfizer could wish to take into account an acquisition at that time. After all, this may be costlier, however it could additionally include much less hypothesis.
General, I believe Pfizer is finest off tabling its pursuit of the burden loss market, remaining targeted on its core choices, and bolstering its oncology companies.
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JPMorgan Chase is an promoting companion 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 revealed by The Motley Idiot