Pfizer Is Buying Weight Loss Biotech Metsera. Here's Why Viking Therapeutics Shareholders May Be Cheering.

Key Points

• These players are vying for positions in the billion-dollar weight loss drug market.

• Demand for weight loss drugs is soaring, suggesting there's room for more than one winner.

• 10 stocks we like better than Viking Therapeutics ›

Weight loss drugs have represented an enormous growth area for biotech and pharma companies over the past couple of years. Pharma giants Eli Lilly and Novo Nordisk dominate the market with their drugs and have brought in billions of dollars in revenue as demand skyrocketed. In fact, last year demand was so high -- surpassing supply at certain points -- that these drugs were on the U.S. Food and Drug Administration's drug shortage list.

Since then, Lilly and Novo Nordisk have ramped up manufacturing to better serve patients, but it's fair to say demand remains strong. The future looks bright too, with some analysts predicting the weight loss drug market will reach a value of nearly $100 billion by the end of the decade. So, it's no surprise that many companies are eager to get involved in this space.

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One in particular is big pharma company Pfizer. The company ended development of its own top candidate earlier this year, and rumors swirled that the next step would be the acquisition of a smaller company with a weight loss program.

From time to time, investors and analysts have mentioned Viking Therapeutics (NASDAQ: VKTX) as a potential target. But this week, Pfizer announced its latest weight loss plan, and it didn't include Viking. Instead, the big pharma said it would buy Metsera, a biotech that just started trading on the market earlier this year.

You might think Viking shareholders would be disappointed -- after all, speculation of an offer from Pfizer has driven the stock higher at certain moments. But Viking stock didn't fall in the trading session immediately following the news.

Here's why Viking shareholders may be cheering.

Image source: Getty Images.

Viking's weight loss program

So, first, a quick summary of Viking's path so far. The company specializes in the development of potential drugs for weight loss and endocrine conditions. The weight loss portfolio is anchored by VK2735, a candidate the company is studying in two separate studies -- in injectable format and pill format. The former is involved in a phase 3 study right now, while the latter is involved in a phase 2 study.

VK2735 is a dual GIP/GLP-1 receptor agonist, similar to the commercialized drugs sold by Lilly and Novo Nordisk. These drugs act on hormones involved in digestion and are known to regulate appetite and blood sugar levels. In a phase 2 dosing trial, Viking's oral candidate resulted in average weight loss of as much as 12.2% over 13 weeks. The injectable candidate in phase 2 generated weight loss of as much as 13.1% during that same time period.

This news, initially announced early last year, pushed the stock into the stratosphere -- Viking saw its shares soar 121% in one trading session. The stock since has given up those gains, though the company's clinical development program continues to progress and deliver positive results.

Approaching the finish line

Meanwhile, as mentioned, some investors imagined Pfizer might make an offer for Viking, considering the biotech's promising program and the fact that, with a phase 3 trial now underway, it's nearing the finish line.

Pfizer opted for Metsera, a company that, like Viking, has several weight loss candidates in the pipeline -- but may be farther from the finish line. Metsera's most advanced candidate, MET-097i, is involved in a phase 2b trial. This candidate's advantage is it's being developed for once-monthly dosing -- versus the current standard of weekly. In the phase 1/2 trial, it resulted in 7.5% reduction in weight after 36 days.

It's difficult to compare the Viking and Metsera candidates, since so many factors differ across trials -- only head-to-head comparisons, involving the same parameters, may offer a clear picture.

A $7.3 billion deal

However, we can say that Pfizer bought an earlier-stage company in a deal that could total as much as $7.3 billion. That includes a $47.50 per-share purchase price -- a 43% premium from the previous closing price -- as well as a contingent value right based on future achievements that could represent a value of $70 per share.

Today, Viking trades for less than $25 a share and has a market cap of $2.8 billion. Shareholders might be cheering at the moment, as the Pfizer-Metsera deal could imply that Viking is greatly undervalued -- and may be worth much more, considering the strength of its candidates and the idea that regulatory review might be on the horizon.

This is positive news for Viking and its shareholders -- whether the company accepts any eventual takeover offer or decides to go it alone in the billion-dollar weight loss market.

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Adria Cimino has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Pfizer. The Motley Fool recommends Novo Nordisk and Viking Therapeutics. The Motley Fool has a disclosure policy.