Viking stock doubled Tuesday. Here’s where the next moves in the obesity space could come from

Anti-obesity drugmakers Novo Nordisk and Eli Lilly have a huge lead on their competition, but given the vast and valuable market, rivals are still eager to join the race. Bank of America analyst Geoff Meacham has been very bullish about the opportunity, which he calls “unprecedented” given the prevalence of obesity and the huge interest investors have shown in this category so far. Meacham was among the first to predict the category could hit $100 billion in peak sales, but now many analysts anticipate the market could be even larger . According to the Centers for Disease Control and Prevention, about 42% of U.S. adults have obesity, a costly condition that’s associated with other wide array of other medical conditions, including heart disease, stroke and cancer. Novo Nordisk, the maker of Ozempic and Wegovy, estimates nearly 800 million people worldwide have obesity. Competition is coming This week, both Zealand Pharma and Viking Therapeutics showed the competition is coming as they reported encouraging progress from their experimental therapies in this broad category, which sent their stocks soaring on the news. Zealand shares popped 35% on Monday after upbeat results for its liver disease treatment survodutide. The treatment, which has a fast-track designation from the Food and Drug Administration, also is being studied for obesity. VKTX YTD mountain Viking shares year to date Then, Viking shares more than doubled in trading on Tuesday, putting the stock on pace to report a more than 300% year-to-date gain, after the company said its GLP-1/GIP receptor agonist VK2735 hit all its primary goals in a phase 2 clinical trial. Patients enrolled in the study lost about 13% of their weight after 13 weeks, which is very competitive with other drugs in this class. Perhaps even more encouraging, there weren’t any signs that weight loss was plateauing, and the drug was well-tolerated with few patients discontinuing treatment. At the same time, shares of both Novo and Lilly pulled back in trading on Tuesday. The competition is “not a problem for Eli Lilly or Novo Nordisk, but it certainly raises the bar for them both,” Yuri Khodjamirian, chief investment officer at Tema ETFs, said in an interview. The Tema Cardiovascular and Metabolic ETF (HRTS) , which is up 12% year to date, owns Novo, Lilly and Viking. REGN YTD mountain Regeneron shares year to date Cardiovascular and metabolic disease is an area that was long neglected by the larger pharmaceutical companies, but they are paying attention to the new developments, which are “very exciting,” Khodjamirian said. What’s more, he doesn’t think that this will be a winner-take-all situation, so Tema has investments in other early-stage companies working to develop weight loss drugs or taking other approaches to treating obesity. These include Biohaven , a company working on drugs to prevent the muscle loss that can accompany use of GLP-1 drugs, or Regeneron , which is looking into a genetic approach to treating obesity. Mixed success But developing drugs in this space isn’t easy. “[T]hose new entrants have had mixed results as Pfizer’s two assets and some smaller players (e.g., Structure Therapeutics and Altimmune ) that underscore the clinical challenges of the space,” Meacham wrote in a recent research note. “Regardless, we expect the number of entrants to continue to swell, especially [as] we see progress on access + reimbursement.” But both Structure and Altimmune were trading higher Tuesday on Viking’s news. Other companies working in the category and adjacent treatments include Terns Pharmaceuticals and Scholar Rock . AstraZeneca and Roche have jumped into the space by making acquisitions . ALT 6M mountain Altimmune shares over the past six months Jeff Jonas, portfolio manager at Gabelli Funds, sees other ways investors could benefit from increasing interest in anti-obesity medications. That includes drug distributors like McKesson , who will benefit from the growing volume of sales, and players who participate in the supply chain like Becton Dickinson . He was an investor in contract drug manufacturer Catalent , which will be bought out by Novo Nordisk’s parent in a deal that is aimed at boosting Novo’s manufacturing capacity. The portfolio manager expects Lilly and Novo have about two more years to enjoy their duopoly in the category before competition intensifies and the current $1,000-plus a month list prices for the GLP-1 drugs “collapse.” Still early days Some analysts and investors admit it is still very early days for obesity treatment and many questions remain to be answered. For example, patients who take these drugs can see the weight creep back on once they stop taking the drugs. But will these people want to stay on these drugs for life? That’s not clear. Especially when one considers that the side effects — which can include nausea, constipation and diarrhea — can force some patients to discontinue use. Next-generation drugs in the pipeline could seek to relieve some of these symptoms — and will likely be rewarded by patients if they can. At the moment, however, it hasn’t mattered much when patients halt treatment because the drugs are in such demand that the companies are selling all they can manufacture. BofA’s Meacham recently shared IQVIA script data for the week ended Feb. 16 with clients that showed robust growth in GLP-1 prescriptions, up 22% from a year ago. Meacham said he expects GLP-1 drugs accounted for a 31% share of the diabetes market in the first quarter, up from 25% in the first quarter of 2023. He estimated that 14% of the prescriptions for GLP-1 medication are being written for obesity, while 86% are for diabetes. “We continue to expect above consensus growth in the space, as we are bullish on adoption from payers and broader obesity uptake,” Meacham wrote. Zepbound, which was approved by the FDA to treat obesity in late 2023, is gaining share quickly, giving Lilly a 46% share of the overall GLP-1 market, according to Meacham. For obesity only, Lilly has already gained a 38% share, despite only being in the market for 13 weeks, he said. And Lilly has the chance to gain even more ground with it grabbing about 47% of all the new prescriptions being written. What’s next for Viking As for Viking, some of Tuesday’s enormous stock gains are being fueled by speculation that another larger pharmaceutical company, like a Merck or a Pfizer will look to buy it, according to Tema’s Khodjamirian. That can often be the playbook in the sector. Khodjamirian noted that manufacturing these drugs is a difficult process, and Viking will need to build a sales force as well to compete against the already established Novo and Lilly. But with the run-up in the stock, it’s become a more costly proposition. Gabelli’s Jonas said he’s skeptical of Pfizer’s interest given that they are already busy integrating previous acquisitions and have amassed a good amount of debt. But, he said, the run-up in Viking’s stock value could allow it to fund its own growth. Commenting on Viking’s stock run-up, William Blair analyst Andy Hsieh said, “… we are admittedly in uncharted territory regarding the commercial potential of the GLP-1 class, and the public’s robust awareness could drive access expansion (specifically, initiation of Medicare reimbursement or growth in company-sponsored healthcare plans).” Hsieh said a competitor could challenge Lilly and Novo by competing on price. “We also emphasize that one of the idiosyncrasies of the U.S. healthcare system, which grants pharmacy benefit managers significant power to shape prescription patterns through the creation of formularies, could present an opportunity for non-first-in-class competitors.”