Analysis: Pfizer Unlikely to Acquire Viking Therapeutics. Here’s the Reasoning.

Analysis: Pfizer Unlikely to Acquire Viking Therapeutics. Here’s the Reasoning.

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

Although the list of treatments is long, only two companies are behind these blockbuster drugs: Novo Nordisk And Elie Lilly.

Recently a small company called Viking Therapeutics is making waves on the weight loss scene following a successful phase 2 trial for its obesity candidate VK273.

Since Viking is still in the development phase, some investors are speculating that the company could be an acquisition target. Pfizer (NYSE:PFE) has been listed as a potential suitor, given the company’s difficulties entering the weight loss market.

Could Pfizer be on the verge of another breakthrough? Let’s evaluate the possibilities.

What is the problem?

Currently, Novo Nordisk and Eli Lilly dominate the weight loss market. However, J.P. Morgan suggests that the GLP-1 market could eclipse $100 billion by 2030. Additionally, data compiled by the International Diabetes Federation shows that by 2045, there could be 1 billion adults with diabetes in the world.

Not only are diabetes and obesity care huge markets, but the underlying growth forecasts suggest this opportunity could be lucrative in the long term. Additionally, given the size of the potential market, it is likely that Eli Lilly and Novo Nordisk will end up facing more competition.

Although Viking is not yet authorized to market VK273, the company may pose the most realistic threat to Lilly and Novo yet.

Analysis: Pfizer Unlikely to Acquire Viking Therapeutics. Here’s the Reasoning.

Image source: Getty Images.

Pfizer might be interested, but…

The last few years have been interesting for Pfizer. The company played a monumental role in develop a vaccine to fight COVID-19. Unsurprisingly, demand for Pfizer’s COVID-19 products has soared, leading to record sales for the pharmaceutical giant.

However, as pandemic concerns eased, Pfizer has struggled to revive growth. The company tried to enter the hot field of weight loss, but ultimately failed to make a breakthrough.

…I don’t think that will happen

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

First, the company just completed the acquisition of oncology specialist Seagen in December. As a reminder, this was not a small-scale affair. Pfizer paid a whopping $43 billion for Seagen.

Given the size of this transaction, my guess is that Pfizer is looking at some lengthy and complicated integration efforts. Thus, any pursuit of acquisitions could distract from current priorities.

On top of all that, Pfizer issued $31 billion in debt in order to finance the Seagen deal. In total, Pfizer now holds more than $70 billion in debt on its balance sheet.

It’s not unusual for pharmaceutical companies to have heavy debt on their balance sheets. After all, bringing new drugs to market is a timely effort that requires significant costs related to research and development.

However, given the issues surrounding Seagen, I believe Pfizer is not considering borrowing more to finance new deals. Additionally, any excess cash flow generated by the company will likely be used to pay down current debt or maintain the dividend, instead of reinvesting in strategic opportunities such as acquisitions.

Will Pfizer acquire Viking? Maybe, but I consider that highly unlikely at the moment. The company has a lot of work to do from an operational standpoint and the priority should be legitimizing the Seagen deal first and foremost. Additionally, while Viking appears to have some momentum, there is no guarantee that its obesity drug will make it to market.

I think a more prudent approach is to monitor Viking’s progress through clinical trials. If the company were approved for its obesity drug, Pfizer could consider an acquisition at that point. Of course, it would cost more, but it would also lead to less speculation.

Overall, I think Pfizer would be better off continuing to capture the weight loss market, staying focused on its core offerings and strengthening its oncology services.

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

Prediction: Pfizer will not acquire Viking Therapeutics. Here’s why. was originally published by The Motley Fool

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