Pfizer will not acquire Viking Therapeutics. This is why.

By | March 31, 2024

One of the biggest mainstays in the pharmaceutical industry is weight loss treatments. Breakthroughs in semaglutide and tirzepatide have given rise to several glucagon-like peptide-1 (GLP-1) drugs, including Ozempic, Rybelsus, Wegovy, Mounjaro and Zepbound.

While that’s a long list of treatments, just two companies are the masterminds behind these blockbuster drugs: Novo Nordisk And Eli Lilly.

Recently a smaller company called Viking therapies made waves in the weight loss world after a successful phase 2 trial for its obesity candidate VK273.

Since Viking is still in the development phase, some investors speculate that the company could be a takeover target. Pfizer (NYSE:PFE) has been mentioned as a potential candidate given the company’s struggle to enter the weight loss market.

Is Pfizer on the verge of a new breakthrough? Let’s assess the possibilities.

What is going on?

Currently, Novo Nordisk and Eli Lilly dominate the weight loss market. However, JPMorgan suggests the GLP-1 market could surpass $100 billion by 2030. Additionally, data collected by the International Diabetes Federation shows that there could be 1 billion adult diabetics worldwide by 2045.

Not only are diabetes and obesity care huge markets, but the underlying growth forecasts suggest that this opportunity could be lucrative in the long term. Furthermore, given the size of the addressable market, it is likely that Eli Lilly and Novo Nordisk will eventually face increased competition.

Although Viking has not yet received permission to commercialize VK273, the company could be the most realistic threat to Lilly and Novo yet.

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

Image source: Getty Images.

Pfizer might be interested, but…

The past few years have been interesting for Pfizer. The company played a monumental role in developing a vaccine to combat COVID-19. It’s no surprise that demand for Pfizer’s COVID-19 products soared, leading to record sales for the pharmaceutical giant.

However, as concerns about the pandemic subside, Pfizer is struggling to revive growth. The company has tried to enter the red-hot weight loss space but has ultimately failed to make any progress.

…I don’t think it will happen

There are two main reasons why I don’t think Pfizer will buy Viking.

Firstly, the company just completed the 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 size of this transaction, I suspect Pfizer is considering complex and lengthy integration efforts. As such, pursuing further acquisitions could distract from current priorities.

In addition, Pfizer issued $31 billion in debt to finance the Seagen deal. In total, Pfizer now has more than $70 billion in debt on its balance sheet.

It is not unusual for pharmaceutical companies to have a lot of debt on their balance sheets. After all, bringing new drugs to market is a timely effort that entails significant costs associated with research and development.

However, given what’s at stake with Seagen, I don’t think Pfizer plans to take on any more loans to finance further transactions. Furthermore, any excess cash flow the company generates will likely be used to pay down current debt or maintain the dividend – rather than reinvesting in strategic opportunities such as acquisitions.

Will Pfizer acquire Viking? Maybe, but I think it’s highly unlikely at this point. The company has a lot to do from an operational perspective and the priority should be, above all else, legitimizing the Seagen deal. Additionally, while Viking appears to have some momentum, there is no guarantee that the company’s obesity drug will make it to market.

I think a wiser approach is to monitor Viking’s progress through clinical trials. If the company is approved for its obesity drug, Pfizer may want to consider a takeover at that point. This would obviously be more expensive, but it would also involve less speculation.

Overall, I think it would be best for Pfizer to ramp up its weight loss business, continue to focus on its core offering and strengthen its oncology services.

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JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. Adam Spatacco has positions at Eli Lilly and Novo Nordisk. The Motley Fool has and recommends positions in JPMorgan Chase and Pfizer. The Motley Fool recommends Novo Nordisk. The Motley Fool has a disclosure policy.

Prediction: Pfizer will not acquire Viking Therapeutics. This is why. was originally published by The Motley Fool

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