Why Weight Loss Drug Developer Stocks Tumbled on Thursday


It wasn’t so long ago when Novo Nordisk (NYSE: NVO) and Eli Lilly (NYSE: LLY) stocks were flying high thanks to their hotly popular weight loss drugs (Wegovy/Ozempic for Novo Nordisk and Zepbound/Mounjaro for Lilly).

In the pharmaceutical industry, as in other sectors, a high-demand product encourages competitors to enter the same segment. News of a rapidly emerging rival put the hurt on both Novo Nordisk and Lilly stocks Thursday, with the former closing the trading session down by almost 3% and the latter declining at a nearly 5% clip. Another weight-loss drug developer, Roche Holdings (OTC:RHHBY) fared better, with a 2.7% gain.

Threat of a Viking invasion

That rival is ambitious clinical-stage biotech Viking Therapeutics. The company published its second-quarter results and business update after market close on Wednesday, and the obesity drug incumbents probably wish it hadn’t.

In that update, Viking revealed that it aims to advance its investigational drug VK2735 to a phase 3 clinical trial. This has the potential to put a real dent in the weight-loss segment that Novo Nordisk and Lilly are currently dominating; according to Viking management, VK2735 demonstrated a roughly 15% decrease in body weight after 13 weeks of use by participants in a phase 2 study conducted earlier this year.

That, uncomfortably for the two incumbents, topped the clinical results of their weight-loss products.

At the moment, investors are more excited about the prospects of the upstarts. That’s a key reason why Roche stock rose along with Viking, and both Novo Nordisk and Lilly slipped. Last week, the Switzerland-based company announced that its CT-996 experimental diabetes/obesity drug had — similarly to Viking — clearly showed solid results compared to a placebo.

While Roche’s treatment hasn’t yet advanced past Phase 1 testing, it obviously has potential. What might even make it a “Wegovy killer,” is that it’s administered in the form of a once-daily pill, as opposed to an injection.

The power of incumbency

I should note here that in both cases, Viking and Roche, the two companies’ products are still in development. Those of Novo Nordisk and Lilly, in sharp contrast, are already on pharmacy shelves and available for use.

It’s not wise to ignore first-mover advantage. Novo Nordisk is a pioneer, as it was the first to win Food and Drug Administration (FDA) approval for this category of drugs. So Wegovy/Ozempic are the twin products most readily associated with such therapies, and many potential patients might only be familiar with these. That will make it challenging to market competing new drugs, and to take share from the established companies.

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Eric Volkman has no position in any of the stocks mentioned. The Motley Fool recommends Novo Nordisk. The Motley Fool has a disclosure policy.

Why Weight Loss Drug Developer Stocks Tumbled on Thursday was originally published by The Motley Fool



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