Viking Therapeutics stock plummeted Wednesday after Merck threw its hat into the obesity treatment race, inking a deal worth up to $2.01 billion for Hansoh Pharma's experimental weight-loss drug.
The licensing deal focuses on HS-10535, a pill that mimics the GLP-1 receptor to improve feelings of satiety and markers of blood sugar. Under terms of the deal, Merck will pay Hansoh $112 million up front to develop, manufacture and commercialize HS-10535. Hansoh is also eligible to receive up to $1.9 billion in milestone payments as well as royalties on sales.
While Merck stock was minimally moved, down 1.7% to 98.34, Viking Therapeutics stock crumbled. Shares tumbled 18% to 38.28. Structure Therapeutics, which is also working on weight-loss drugs, saw shares plunge 11.4%, closing at 27.90.
Not only does Merck represent a big, new competitor in the obesity race, investors also likely see a potential acquirer being taken off the buying list.
"From our conversations with clients, Merck represents one of the most likely acquirers of Viking," William Blair analyst Andy Hsieh said in a report. "As a result, Viking shares will understandably sell off today. However, we do not believe the licensing agreement will preclude Merck from expanding its presence in obesity through further external business development activities."
Viking Therapeutics: Rivaling Big-Name Pharmas
The weight-loss pills space could be huge. Big-name pharma companies are spending lots of cash to move into it.
In 2023, Roche paid $2.7 billion to buy Carmot Therapeutics for its suite of experimental weight-loss drugs, including an oral GLP-1-targeting drug. AstraZeneca gained the global rights to another weight-loss drug from Eccogene in late 2023. That deal included $185 million up front and up to $1.83 billion in milestones as well as tiered royalties.
Eli Lilly and Pfizer are also in this space, though the latter has faced numerous setbacks.
But William Blair's Hsieh notes obesity is a complex multifaceted disease.
"It is unlikely that a single preclinical asset could fully address the unmet medical need," he said.
This means Merck could scoop up other potential weight-loss drugs, returning the focus to Viking Therapeutics.
"We believe that today's deal solidified Merck's tangible interest in obesity and could (be a) catalyst (for) growth of the franchise through additional deals," he said.
Merck's Growing Incretin Franchise
Hsieh kept his outperform rating on Viking Therapeutics stock. He noted, given the acquisition focus on Viking, any competitive data or licensing deal could have an outsize impact on shares.
Viking is working on a drug called VK2735, which is being developed as both a pill and a shot to stoke weight loss. Like Lilly's tirzepatide — which sells in diabetes treatment as Mounjaro and as a weight-loss drug called Zepbound — it mimics the GLP-1 and GIPR hormones. But Viking is working on less frequent dosing and says its injection could be given monthly.
"In our view, the asset could immediately propel a potential acquirer's obesity franchise into leadership status, and we highlight additional potential upside from Viking's in-house amylin program," he said. Amylin is another hormone that regulates blood sugar levels and food intake.
For Merck, the deal with Hansoh builds on its existing incretin franchise. The company already sells Januvia, a treatment for type 2 diabetes. Januvia targets the incretin, DPP-4, which plays a role in glucose metabolism. Incretins, which include GLP-1, are gut hormones that stimulate the pancreas and are involved in releasing insulin.
"Through this agreement, we aim to build on our experience targeting incretin biology to evaluate HS-10535 and its potential to provide additional cardiometabolic benefits beyond weight reduction," Dean Yi, president of Merck Research Laboratories, said in a statement.
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