Pfizer Won’t Acquire Viking Therapeutics. Here’s Why.

One of many largest tailwinds within the pharmaceutical business is weight reduction remedies. 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 record of remedies, solely two firms are the brains behind these blockbuster medication: Novo Nordisk and Eli Lilly.

Not too long ago, a smaller firm referred to as Viking Therapeutics made waves within the weight reduction scene following a profitable part 2 trial for its weight problems candidate VK273.

Given Viking continues to be in growth phases, some traders are speculating that the corporate might 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 may eclipse $100 billion by 2030. Furthermore, knowledge compiled by the Worldwide Diabetes Federation reveals that by 2045 there might be 1 billion grownup diabetics worldwide.

Not solely are diabetes and weight problems care huge markets, however the underlying progress forecasts recommend the chance might be profitable over the long term. Moreover, given the dimensions of the addressable market, it is doubtless that Eli Lilly and Novo Nordisk will ultimately face extra competitors.

Whereas Viking is just not but accepted to commercialize VK273, the corporate might be probably the most reasonable menace to Lilly and Novo thus far.

A person in a white lab coat shakes hands with a person holding a tablet.

Picture supply: Getty Photographs.

Pfizer might be , however…

The final a number of years have been fascinating for Pfizer. The corporate performed a monumental function in creating a vaccine to fight COVID-19. Unsurprisingly, demand for Pfizer’s COVID-19 merchandise soared — resulting in document gross sales for the pharma large.

Nevertheless, as pandemic considerations subside, Pfizer has been hard-pressed to reignite progress. The corporate has tried to enter the red-hot weight reduction house, however has in the end didn’t make any inroads.

…I do not assume it will occur

There are two primary explanation why I do not assume 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 sophisticated and lengthy integration efforts. As such, pursuing any additional acquisitions may distract from present priorities.

On prime of all of that, Pfizer issued $31 billion of debt with a purpose to finance the Seagen deal. In complete, Pfizer now holds over $70 billion of debt on its stability sheet.

It isn’t atypical for pharmaceutical firms to hold a whole lot of debt on the stability sheet. In spite of everything, bringing new drugs to the market is a well timed effort that requires vital prices associated to analysis and growth.

Nevertheless, given what’s at stake with Seagen, I’d assume Pfizer is not seeking to tackle any extra loans to finance additional transactions. Furthermore, any extra money move the corporate generates will doubtless be used to retire present debt or keep 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 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 is no such thing as a assure that the corporate’s weight problems drug will attain commercialization.

I believe a extra prudent method is to observe Viking’s progress by medical trials. Ought to the corporate be accepted for its weight problems drug, Pfizer could wish to take into account an acquisition at that time. After all, this could 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 providers.

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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. Here is Why. was initially printed by The Motley Idiot

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