Why Eli Lilly And Rival Novo Nordisk Won’t Be Troubled By Viking’s Latest Weight Loss Data

Summary:

• Eli Lilly and Novo Nordisk have created what Wall Street believes will be the biggest ever pharmaceutical market with its miraculous weight loss drugs.
• Novo Nordisk’s Ozempic and Wegovy, as well as Eli Lilly’s Mounjaro and Zepbound, have already generated billions of dollars in revenue but this may be the tip of the iceberg.
• Viking Therapeutics’ VK2735 has emerged as a strong contender in the GLP-1 drug market, with promising weight loss results in clinical studies.
• While Viking’s data is immature and based on small patients samples, however, Lilly and Novo’s vast experience and established infrastructure mean they remain well ahead of the competition.
• In fact, Lilly and Novo’s next-generation drug looks better than any other companies, and as crazy as it may sound, it may be that a trillion dollar market cap valuation beckons.

Investment Overview- Background To Stunning Rise Of GLP-1 Analogue Drug Class

Doubtless, readers will be familiar with the Wegovy / Zepbound, Ozempic / Mounjaro, tirzepatide / semaglutide “miracle” weight loss story by now – but to recap:

Semaglutide is a glucagon-like peptide-1 receptor agonist, or “GLP-1” agonist / analogue developed by Danish Pharma Novo Nordisk (NVO). These types of drugs have been used for many years to treat type 2 diabetes, as they prompt the body to produce more insulin.

On its path to its 2020 approval as a Type 2 diabetes drug, now marketed and sold as Ozempic, studies showed that Novo Nordisk’s drug also displayed an extraordinary ability to achieve weight loss in patients. Mimicking the naturally occurring incretin hormone, semaglutide was able to stimulate appetite suppressing receptors in the brain, and make patients feel more full.

One study of nearly 2,000 patients showed that Ozempic achieved 14.9% weight loss versus 2.4% in the placebo arm, while 84% of patients achieved at least 5% weight loss, versus 31% for placebo.

These stunning results led to semaglutide being approved to treat obesity in June 2021, under the brand name Wegovy. Wegovy rapidly became one of the most hyped drugs of all-time, with analysts suggesting it could easily earn >$50bn per annum in weight loss alone.

Meanwhile, Eli Lilly (NYSE:LLY) had been developing its own diabetes / weight loss drug candidate, tirzepatide, with a similar mechanism of action (“MoA”) to semaglutide, albeit slightly nuanced – according to the respected scientific publication The Lancet:

In the search for the next step beyond GLP-1, researchers have explored suitable companion treatments to obtain enhanced efficacy. The other incretin, glucose-dependent insulinotropic polypeptide (GIP), is, on first look, a natural partner to GLP-1 and is the more dominant insulinotropic hormone in normal physiology. Tirzepatide, a unimolecular dual agonist of GLP-1 and GIP receptors, was developed with this so-called “twincretin” concept in mind.

In May 2022, tirzepatide was approved to treat Type 2 diabetes under the brand name Mounjaro, and in November last year, it was approved to treat obesity under the brand name Zepbound. Zepbound’s ability to reduce weight was even greater than Wegovy’s, with studies showing patients using the higher dose of the drug – 15mg – lost ~21% of their body weight at 72 weeks.

In 2023, Novo Nordisk reported that Ozempic had driven $13.9bn of revenues for the year, and Wegovy, $4.5bn. Meanwhile, Eli Lilly reported Mounjaro revenues of $5.2bn for the year, and $716m of Zepbound revenues (in less than two months on the market).

Wall Street analysts have speculated that the GLP-1 market will exceed $100bn per annum by 2030, with potentially 30m users of the drugs in the US alone – representing ~9% of the population. Unsurprisingly, the effect on both Lilly and Novo’s share prices has been seismic.

On a 5-year basis, Lilly’s stock has risen >500% in value, and the company has a market cap of (at the time of writing) of $740bn. Novo stock is up nearly 400% over the same period, and its current market cap is $570bn.

As Pharma and Biotech Industries Scramble To Develop GLP-1 drugs, Viking Emerges As Strongest Contender

Unsurprisingly, given the unprecedented scale of the market opportunity, nearly every major Pharma company and scores of biotech firms have attempted to produce their own GLP-1 drugs capable of challenging the Lilly / Novo duopoly.

Few have succeeded. Pfizer (PFE), for example, had high hopes for twice daily oral pill (both Wegovy and Zepbound are administered via auto-injectors), danuglipron, but its side-effect profile led to the majority of patients dropping out of its clinical study. Pharma giants Merck (MRK), Sanofi (SNY), Abbott Laboratories (ABT) and Eisai have all failed to produce effective weight loss drugs, stretching as far back as 1997.

More recently, Amgen has developed AMG-133, or MariTide, which targets GLP-1 and GIP, like tirzepatide. The drug has shown promise in a Phase 1 study, and is considered to be one of the better prospects, albeit still some years away from an approval shot.

Meanwhile, a new contender has emerged in the form of Viking Therapeutics’ (VKTX) drug candidate VK2735, a company I covered in a note for Seeking Alpha a few weeks back.

Viking’s drug is another GLP-1 / GIP “twincretin” style drug, and in a recent Phase 2 study, the company reported:

Patients receiving weekly doses of VK2735 demonstrated statistically significant reductions in mean body weight after 13 weeks, ranging up to 14.7% from baseline. Patients receiving VK2735 also demonstrated statistically significant reductions in mean body weight relative to placebo, ranging up to 13.1%.

Note that these exceptional results were achieved in just 13 weeks – for context, tirzepatide achieved ~7% weight loss in a roughly equivalent study. Unsurprisingly, the market reacted very positively to the news, sending Viking stock soaring, to ~$95 per share. Current traded price is $82, up ~350% year-to-date, and an incredible 620% across the past 6 months.

I wrote in my note on Viking:

Analysts noted the strong safety profile of VK2735, and the fact weight loss did not plateau during the study, suggesting further weight loss may be achieved at 72 weeks. Viking quickly moved to raise $550m via a share offering, selling ~6.4m shares, priced at $85 per share.

Almost as soon as Viking’s data were released, however, Novo released data of its own, as I wrote:

Novo may have gone one better with its latest data readout, for new oral drug amycretin, which stimulates the hormone amylin, which helps control feelings of hunger, as well as GLP-1. Data showed that patients lost 13% of their weight in just 12 weeks, with apparently fewer negative side effects.

Not to be outdone, a few days ago Viking released data from an oral form of VK2735 which showed patients achieving a mean weight loss of 5.3%, or a 3.3% improvement over placebo. According to Viking:

An exploratory assessment of the proportion of subjects achieving at least 5% weight loss after 28 days demonstrated that up to 57% of VK2735-treated subjects achieved ≥5% weight loss, compared to 0% for placebo.

Why Viking’s Date Is Unlikely To Derail The Market Incumbents

Viking’s data has got Wall Street excited – after its stock had slipped to ~$7- per share, the oral pill data saw it climbing again, to >$80, representing a near 20% overnight gain. Viking’s market cap is now $9bn, but given it could emerge as a player in this largest-ever pharmaceutical market (if Wall Street is to be believed), is it not likely to double, or even triple in value as VK2735 progresses through the clinical study process.

It’s possible, but what Novo’s data for amycretin shows is just how much knowledge and experience the company has within the diabetes market, which it has been able to carry seamlessly into the obesity market, and how much better prepared it is to carry clinical trial momentum into commercial markets. The same is also true of Eli Lilly – these two companies are veterans in the diabetes markets, and their infrastructure is unrivalled.

For example, whilst Novo has amycretin, Lilly is also guiding promising new drugs through the clinical study process, most notably retatrutide – nicknamed “triple-G” as it targets three different hormones – GLP-1, GIP, and glucagon – and an oral pill, orforglipron.

In June last year, Lilly shared data from a Phase 2 study of orforglipron as follows:

At the 26-week primary endpoint, orforglipron (12 mg, 24 mg, 36 mg or 45 mg) showed statistically significant dose-dependent body weight reductions for all doses ranging from 8.6% (19.8 lb. or 9.0 kg) to 12.6% (29.3 lb. or 13.3 kg) compared to 2.0% (4.6 lb. or 2.1 kg) for placebo.

For those taking orforglipron, body weight continued to decrease at 36 weeks where all doses achieved body weight reductions ranging from 9.4% (21.6 lb. or 9.8 kg) to 14.7% (34.0 lb. or 15.4 kg) compared to 2.3% (5.3 lb. or 2.4 kg) for placebo. The mean baseline body weight of participants was 240 lb. (109 kg).

Importantly, Lilly’s study of orforglipron involved 272 participants, whilst Viking’s study involved just 37 patients who took VK2735, and 10 patients taking placebo. In its study of injectable VK2735, there were 35 patients taking different doses of the drug, and 34 patients taking placebo.

In Novo’s study of amycretin, 144 patients took part, although the data that showed 13% weight loss was from a cohort of just 16 patients. You could argue that this suggests amycretin still has it all to prove, but any negativity must be balanced against Novo’s enormous experience and the volume of studies the Pharma has conducted in this field. Viking, which only recently began to realise VK2735 may have weight loss properties, simply cannot match that level of experience and knowhow.

We must also acknowledge that when it comes to manufacturing GLP-1 drugs, Lilly and Novo – which has faced supply issues in the past – are streets ahead of the competition. As I noted in a post on Lilly a few months back, the company is in the process of developing 5 new manufacturing sites dedicated to producing tirzepatide, investing $6bn. This is the kind of expenditure that only a very few companies can match, and certainly not the likes of Viking Therapeutics. Amgen perhaps, but by the time its injectable makes it to market, the dynamics of challenging the incumbents will be exceptionally tough, I would expect.

Meanwhile, retatrutide data from a Phase 2 study that showed mean weight reduction of up to 24% at 48 weeks has already been published in the New England Journal of Medicine, providing an additional layer of validation. The reality may be that no other company besides Novo can match the pace at which Lilly is moving this nascent industry into new territory.

Concluding Thoughts – Onwards & Upwards For Weight Loss Untouchables Novo and Lilly – Others Must Prove They Have What It Takes

Having kept a close eye on semaglutide and tirzepatide for two years now (at first, I could not figure out how Lilly’s share price could possibly be climbing so high), when it comes to the weight loss “revolution”, I have Lilly in first place, Novo a narrow second, and the rest of the field a long, long, way back.

That is reflected in Lilly and Novo’s valuations, which quite frankly, would feel ludicrous if it were not for the extraordinary potential of the GLP-1 phenomenon.

Lilly, for example, is guiding for $40 – $41.6bn of revenues in 2024 – across its entire commercial drug portfolio. That means the company trades at a forward price to sales ratio of ~18x – almost unheard of for a Big Pharma company – the average figure is closer to ~4x.

Novo, meanwhile, has guided for revenue growth of 17 – 25%, and a rise I operating profit of 19-27%. Given revenues in 2023 were $34.4bn, Novo is likely to match Lilly’s revenues of ~$41bn, and will trade at a forward P/S of ~14x.

With valuations marching skywards, it does seem reasonable to ask if they can be sustained over the long-term – after all, a safety setback, manufacturing issues, or the emergence of a superior drug – from Amgen, Viking, Pfizer, or whomever – would surely make a mockery of Wall Street’s revenue expectations for tirzepatide / semaglutide?

For example, reports have emerged that researchers have calculated that Ozempic could be profitably made for as little as $5 per month, yet both Lilly and Novo charge ~$1,000 per months for their products.

I would certainly acknowledge that risk, and have done in prior posts – completing discounted cash analysis for example, it is almost impossible to justify Lilly’s current valuation even if tirzepatide surpasses Wall Street’s revenue expectations.

Nevertheless, to expect these factors to deliver a reality check, and check the upward momentum of Lilly stock price, in the short-to-medium term may be unrealistic. Lilly and Novo have pushed the weight loss boundaries far beyond what anyone believed possible, and are reaping the rewards. We may not have reached peak hype yet.

My suspicion is that we may soon witness the first ever trillion-dollar market cap valuation Pharma company. Shortly after that, it is not impossible we may witness a second.

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