Could Merck Be Set to Dominate the Weight Loss Market Stocks?
Could Merck Be Set to Dominate the Weight Loss Market Stocks?
Warning bell ringing for Eli Lilly and Novo Nordisk, as Merck (MRK shedding 0.17%) is eying to make a bite into the weight-loss drugs market.
Amidst the competitive landscape, the pharma giant is pouring a substantial amount of funds, anticipating a significant role in the future game. But the question remains: Will this investment strategy make Merck the next impactful weight-loss stock? Let's delve into it.
This move marks a trend
On December 16, Merck announced a licensing agreement with a Chinese biopharma named Hansoh Pharma. This deal grants Merck the worldwide, exclusive rights to develop and sell a preclinical stage drug candidate, HS-10535. This compound exhibits promising potential in managing a few high-profile cardiometabolic disorders, like obesity and type 2 diabetes. Merck paid Hansoh Pharma a hefty upfront cash sum of $112 million for this asset, coupled with commitments to fund development milestone payments up to $1.9 billion and royalty payments, in case the candidate is commercialized.
So, what makes HS-10535 such an expensive bet? HS-10535 is a pill that works similarly to Novo Nordisk's injectable diabetes drug, Ozempic. Its primary advantage could be its composition. Ozempic is a peptide, a complex molecule made up of amino acids. On the contrary, HS-10535 is a small molecule drug, which, as the name suggests, is simpler to manufacture. Small molecules are typically less costly to produce compared to peptides, largely due to their simpler composition.
Considering Novo Nordisk's recent investments in manufacturing facilities to produce more Ozempic and similar drugs, Merck's weight loss drug candidate could alter the competitive landscape significantly if it is more affordable to produce. By incurring less capital expenditure in setting up the manufacturing facilities and then offering a lower-priced drug, Merck could potentially secure a substantial market share. Even if HS-10535 slightly lower in potency than Ozempic or Wegovy for its intended purposes, the cost advantage could be substantial.
And that's why Merck could realistically become the next impactful weight-loss stock.
Keep your expectations in check for now
Before you start buying Merck shares, consider two aspects of its weight-loss prospects.
First, several years of further research and development (R&D) work will be required before this new candidate has a chance of approval, assuming it ever does. For investors, preclinical programs rarely merit excitement due to the numerous challenges they face before commercialization, and HS-10535 is no exception.
Second, Merck is a mega-corporation. Its trailing-12-month (TTM) revenue stands at $63.1 billion, and by the time the new candidate might be approved, this figure will likely be significantly larger. If HS-10535 eventually becomes a blockbuster drug earning more than $1 billion annually — which is more than most drugs achieve during their peak sales period — it might not drive the stock price much, even considering the low production cost relative to Ozempic.
Consequently, Merck is not necessarily a sure bet to become the leading weight-loss stock. Until it provides some clinically convincing data about this latest candidate, there's no compelling reason to invest in the stock for its weight-loss programs specifically. Until further strategic moves are announced to prepare for market entry, which could happen soon, wait for 18 months.
The potential acquisition of HS-10535 could significantly influence Merck's finance, with potential savings from its simpler composition reducing manufacturing costs compared to Novo Nordisk's Ozempic. This investment in weight-loss drugs could potentially position Merck as a key player in the market, providing a more affordable option.
However, it's important to note that Merck's investment in HS-10535 is still in its preclinical stages, requiring several years of research and development before approval is possible. Additionally, as a large corporation with substantial revenue, a blockbuster drug like HS-10535 might not have a significant impact on the stock price, even if it becomes a commercial success.