- Lilly leads in efficacy
- Pfizer data imminent
Some of the world’s biggest pharmaceutical companies are clamouring for a share of the weight loss market currently dominated by Novo Nordisk (DK:NOVO.B) and Eli Lilly (US:LLY). In a matter of months, these companies have become the most valuable in their sector thanks to the phenomenal demand for their GLP-1 obesity drugs. The likes of Pfizer (US:PFE) and AstraZeneca (AZN) are no doubt looking on in envy as their stocks are eroded by shrinking sales of Covid-19 products.
It’s little wonder that both companies have their own obesity drug candidates in the early stages of development – as do a handful of other companies, including Amgen (US:AMGN) and Merck (US:MRK). The efficacy of these potential challengers, and the timing of their launches, could have profit and share price implications that ripple across the pharmaceutical industry.
Challenger compounds
There’s relatively little known about Pfizer’s danuglipron, a GLP-1 pill currently in the second phase of the three-stage trial process. At a conference staged by investment bank Evercore last month, the company’s chief financial officer, David Denton, reiterated that it expects to release data on the drug’s performance before the end of the year. He also stressed that while the weight loss market has the potential to be an important growth driver, it is “certainly not the end all, be all focus for Pfizer”.
The company suffered a setback in its obesity pipeline in June, when it revealed it would stop developing a therapy known as lotiglipron after patients in a trial developed liver complications. Its shares fell 5 per cent following the announcement – which perhaps explains why management has since sought to emphasise the breadth of its drug pipeline.
For its part, AstraZeneca has also had teething problems with GLP-1 candidates. It scrapped two of them this year after data showed they weren’t likely to be as effective as rival products already on the market. However, it later announced an exclusive licence agreement with Shanghai-based Eccogene for an experimental oral GLP-1 currently titled ECC5004.
According to a statement from AstraZeneca, the pill displays a promising clinical profile and “good tolerability” among patients in a preliminary trial.
Some analysts believe that the latter quality is what could give challenger drugs an advantage over Lilly and Novo’s first-generation therapies. “I think we’re at a point now where we have some strong-efficacy drugs,” said Damien Conover, the director of healthcare equity research for Morningstar. “If anything, you need to pivot to fewer side effects or easier dosing.”
Incumbent advantage?
Both Lilly’s tirzepatide and Novo’s semaglutide (the generic names for their available GLP-1s) are administered via subcutaneous injection. However, patients tend to prefer the experience and convenience of taking a drug by mouth, and jabs are more expensive to manufacture. These drugs are also known to be accompanied by some unpleasant side effects, including gastrointestinal upset. Lilly and Novo are, of course, aware of these issues and are in the process of developing workarounds.
Novo Nordisk has already received approval from the US Food and Drug Administration (FDA) for an oral version of semaglutide, although it can only be prescribed for the treatment of type II diabetes. Meanwhile, Eli Lilly is in the midst of stage three trials for an oral drug, orforglipron, which has shown to have a superior efficacy profile. Analysis of previous trial data showed that it helped patients achieve a similar weight reduction to the semaglutide pill, but across a shorter period of time.
In the medium term, it looks as though the first movers in the weight-loss market will continue to be its dominant players. This isn’t necessarily good news for prospective investors, given the duo’s already sky-high valuations. Eli Lilly currently trades on a forward price/earnings multiple of 48 times for FY24, while Novo Nordisk trades on a slightly more modest 32. According to Morningstar’s Conover both groups would need to achieve far greater market penetration – or percentage of sales to its total patient base – to justify these prices.
“Based on what we’re forecasting now, [GLP-1s] are going to be some of the biggest drugs ever,” said Morningstar’s Conover. “We have a lot of conviction in these drugs; we just think the valuations have gotten a little stretched.”
Investors who feel they’ve missed out should keep an eye on future developments and data readouts in the GLP-1 space. Drugs that show a physical benefit to patients, or a price advantage for healthcare systems, could yet outshine existing formulas.
