The previous article presented my methodology for selecting promising pharmaceutical companies and how to identify and avoid pitfalls when investing in the healthcare sector. The main goals of the information given were my desire to help Seeking Alpha readers be more aware of the issue of analyzing financial risks, the clinical data of a company’s medicines, its financial metrics, and the need to take into account the influence of its competitors to ultimately make more informed decisions and maximize the profit from investments.
Global obesity treatment market
The global obesity treatment market is of enormous interest not only because it is expected to be worth more than $100 billion by 2030 but also because only two of the eight FDA-approved medications are currently extremely popular for weight control.
As a result, there is still significant potential for growth in sales of medicines developed by Wall Street mastodons such as Eli Lilly (LLY) and Novo Nordisk (NVO). However, I also believe that commercial opportunities remain for smaller companies, the analysis of which will be presented later in the article.
Overall, the clinical data from semaglutide and tirzepatide indicate that anti-obesity medications have the potential to be effective, including in reducing the risk of progression of kidney disease and major adverse cardiovascular events, as well as in the treatment of other diseases, including obstructive sleep apnea, metabolic dysfunction-associated steatohepatitis, osteoarthritis of the knee and more.
According to IQVIA, there are currently around 120 drugs in development for obesity treatment. Given the tremendous success of Eli Lilly’s Zepbound and Novo Nordisk’s Wegovy, this requires others in the obesity treatment market to develop medications with more effective mechanisms of action that can not only provide better weight-loss outcomes but also address the problem of muscle loss caused by the use of GLP-1 receptor agonists.
In addition, I believe that the efforts of pharmaceutical companies should be aimed not only at finding molecules with higher clinical efficacy relative to competitors but also their product candidates should have a lower incidence of gastrointestinal adverse reactions, including nausea and diarrhea, to ultimately meet the needs of people living with obesity.
In the table, I have indicated the most promising drugs and their mechanisms of action.
Companies, for one reason or another that do not currently have a favorable risk/reward profile
However, there are other factors to consider when investing in the healthcare sector, so not all of the companies listed below have a favorable risk/reward profile at the moment.
So, according to my methodology, I exclude Altimmune (ALT) and Terns Pharmaceuticals (TERN) since their market capitalization is below $500 million. However, it will be useful for Seeking Alpha readers to know that pemvidutide, which is a dual GLP-1/glucagon receptor agonist, demonstrated encouraging data in a phase 2 clinical trial.
So, in a group of patients taking Altimmune’s product candidate at a dose of 2.4 mg, body weight decreased by 15.6% by 48 weeks. However, an MRI-based body composition analysis of 50 patients showed that the average loss of lean mass was 21.9%. By comparison, in a 68-week trial, weight loss in patients taking Novo Nordisk’s Wegovy was associated with a 39.5% loss of muscle mass.
Let’s move on to discuss Viking Therapeutics (VKTX), which is one of my favorites in the healthcare sector and which brought me significant profits in 2023. It has an extremely promising portfolio of investigational drugs being developed to treat metabolic and endocrine disorders.
According to Seeking Alpha data, analysts have an average price target of $112 for Viking Therapeutics, indicating a potential growth of over 100% from its current share price. One of the reasons why Wall Street analysts believe Viking Therapeutics has a bright future is the excellent results from Phase 2, which assessed the efficacy of VK2735 in treating patients with obesity.
So, in the group of patients taking VK2735 at a dose of 15 mg, the average reduction in body weight was 14.7% at the end of the 13-week course of treatment. This value is significantly higher than that of all FDA-approved drugs currently.
However, the FDA could potentially request an additional Phase 2b clinical trial to evaluate VK2735’s additional dose strengths and/or frequency of dosing, which would increase the time to start a pivotal clinical trial, as well as due to the incomplete technical correction of its stock price, I believe that Viking Therapeutics does not currently have a favorable risk/reward profile.
I also believe that Eli Lilly does not have a favorable risk/reward profile at the moment, as stated in “Eli Lilly: Good Performance, But A Hold,” due to the lack of strong catalysts on the near horizon after Kisunla was approved by the FDA for the treatment of Alzheimer’s disease. In addition, its trailing 12-month P/E ratio is 124.6x, and by 2026, although it will drop to 36.2x, it will still be significantly higher than that of the sector, but also Novo Nordisk.
However, its obesity franchise is robust, including through Zepbound (tirzepatide). So, its sales amounted to $517.4 million in the first three months of 2024, which is approximately 3 times more than the previous quarter thanks to an avalanche-like growth in demand for it due to its highest efficacy in the global obesity treatment market at the moment.
Also, as I already indicated in the previous article, on April 17, 2024, Eli Lilly pleased investors with data from two Phase 3 clinical trials showing that the group of patients taking tirzepatide experienced a significant reduction in the apnea-hypopnea index relative to the placebo group. The company’s product also contributed to a statistically significant improvement in sleep apnea symptoms.
If approved by the FDA and EMA, tirzepatide would be the first pharmaceutical treatment for tens of millions of adults with obstructive sleep apnea.
In addition to the growth in sales of Zepbound, Eli Lilly continues to actively develop its obesity franchise with the ultimate goal of strengthening its position in the market.
So, in my assessment, the company’s most promising drug is retatrutide, which is a GLP-1/GIP/glucagon receptor triagonist.
At the end of June 2023, Eli Lilly published the data of a phase 2 clinical trial that demonstrated the outstanding efficacy of its experimental drug among obese individuals without diabetes. At the 24th week of treatment, the group of patients taking retatrutide 12 mg experienced a decrease in body weight by 17.5%, and by the end of the 48-week course of treatment, this value increased to 24.2%.
The company is currently conducting several pivotal studies to evaluate the efficacy of retatrutide in the treatment of obesity, obstructive sleep apnea, and knee osteoarthritis in participants who have obesity.
Also, according to my steps for selecting the most promising pharmaceutical companies, I exclude Structure Therapeutics (GPCR), Zealand Pharma (OTCPK:ZLDPF), and Boehringer Ingelheim for the following reasons noted in the table below.
Companies with a favorable risk/reward profile in the anti-obesity therapeutics market
Let’s finally move on to the most interesting part of the article, namely my list of the most investment-attractive pharmaceutical companies in the global anti-obesity drugs market. The first of these was Novo Nordisk, the analysis of which was presented in the previous article “How To Pick Top Pharma Stocks: Novo Nordisk And More.”
Amgen
Amgen (AMGN) is a pharmaceutical company with a leading position in the global autoimmune disease and cancer therapeutics markets.
My previous article, “Amgen: You Haven’t Seen Anything Yet,” which was published on June 17, provided a detailed analysis of the company’s financial results for the first quarter of 2024.
However, some of Seeking Alpha’s readers may have missed it. As a result, the table below shows the growth rate of revenue, operating income, and other metrics, including its P/E ratio, which once again underscores why Amgen is attracting significant attention from financial market participants.
In recent years, the company’s management, recognizing the significant commercial opportunities in the market for obesity drugs, has continued to invest substantial financial and research resources in the development of its franchise.
So, in my opinion, one of the most promising drugs in Amgen’s portfolio, which has attracted the attention of Wall Street like a magnet in recent months, is MariTide (maridebart cafraglutide).
The mechanism of action of this molecule is complex since, on the one hand, it is a GIPR antagonist, and on the other hand, it activates glucagon-like peptide 1 receptors. To further understand, Novo Nordisk’s Ozempic, Wegovy, and Trulicity are GLP-1 receptor agonists, meaning they activate the glucagon-like peptide-1 receptor.
On February 5, 2024, Amgen and Nature published the results of a clinical study that shocked me in that a group of patients taking the highest dose of MariTide led to a loss of 14.5% body weight on the 85th day, which today is significantly higher compared to such blockbusters as semaglutide and Eli Lilly’s tirzepatide.
Currently, the company is working to complete a Phase 2 clinical trial and is committed to moving forward with pivotal clinical studies to determine the efficacy of MariTide in the fight against type 2 diabetes and obesity.
On May 2, Dr. James Bradner, the Chief Scientific Officer of Amgen, said the following on the quarterly earnings call.
We’re seeing a differentiated profile of MariTide and are confident that it will address important unmet medical needs, obesity, obesity-related conditions and diabetes. We look forward to completing the ongoing Phase II study and working with regulators to move rapidly to the broad Phase III program.
Pfizer
Pfizer (PFE) is a pharmaceutical company whose share price has returned to an upward trend despite continued pessimism from retail investors.
My previous article, “Pfizer: Seriously Undervalued At Peak Pessimism,” which was published on June 23, provided a detailed analysis of the company’s financial results for the first quarter of 2024. However, for those readers who may have missed it, I have summarized Pfizer’s dividend yield, as well as its growth rate in revenue, operating income and other metrics over recent quarters.
Just like Amgen, Pfizer management is seeking to bite off a share of the obesity treatment market from Novo Nordisk and Eli Lilly.
On December 1, 2023, the company published the results of a phase 2b clinical trial evaluating the efficacy of danuglipron, which is a non-peptide GLP-1 receptor agonist. So, patients taking danuglipron 120 mg led to a decrease in body weight by 11.7% by the end of 32 weeks, while those who took placebo had an increase in body weight by 1.4%. Also, although the safety profile of the experimental drug was acceptable, one of its disadvantages is the frequency of dosing, namely the need to take it twice a day.
As a result, the company works on its once-daily formulation. Albert Bourla, who is the CEO of Pfizer, said the following on the last quarterly earnings call.
So, we are waiting around mid-year to get the totality of the data that relates to the once-a-day formulation. And then based on the data and everything else, we will make decisions for future plans.
Also, at the end of June, Albert Bourla encouraged investors by announcing that Pfizer was analyzing three new product candidates for weight loss. The mechanism of action, two of which are based on the activation of GLP-1 receptors, but he kept silent about how the third medication works.
Roche Holding
Roche Holding (OTCQX:RHHBY) is the largest Swiss pharmaceutical company, whose diagnostic solutions were in great demand during the COVID-19 pandemic. In addition, it has an extensive portfolio of medicines for the treatment of cancer, inflammatory diseases, rare diseases, eye disorders and more.
Since the topic of this article is “analysis of the obesity treatment market” and because I plan to publish an in-depth analysis of the financial results of the company and its pipeline of experimental drugs, the table below highlights only the values of key Roche Holding metrics indicating that it is trading at a discount relative to the sector, as well as some of its competitors, including Merck (MRK), AbbVie (ABBV), Regeneron Pharmaceuticals (REGN), and AstraZeneca (AZN).
On May 16, 2024, news published by a Swiss pharmaceutical company caused a furor among financial market participants. So, patients taking CT-388, which is a GLP-1/GIP receptor agonist, led to a decrease in average placebo-adjusted weight loss by 18.8% at the end of the 24-week course of treatment. In addition, Roche stated that this experimental drug was well tolerated without disclosing full data on adverse events that occurred.
Takeaway
In this article, I presented an analysis of the global market for obesity drugs, which, according to JPMorgan analysts (JPM), will exceed $100 billion by 2030.
In the first part, a list of the most promising drugs that demonstrate promising clinical results in the fight against obesity was presented. However, not all companies developing them have a favorable risk/reward profile.
On the other hand, in my opinion, Novo Nordisk, Roche Holding, Amgen, and Pfizer are attractive stocks for long-term investors interested in the healthcare sector.
Editor’s Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.
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