Merck’s Strategic Move into Obesity Drug Market: A $2 Billion Deal
Overview
In a bold move to expand its foothold in the growing obesity medication marketplace, Merck & Co. has finalized a deal potentially worth up to $2 billion for the exclusive global rights to the oral drug HS-10535, developed by China’s Hansoh Pharmaceutical Group Co. The agreement positions Merck strategically within a lucrative and competitive sector dominated by injectable treatments like Novo Nordisk’s Ozempic and Wegovy. This acquisition, particularly under the spotlight of the prevalent obesity epidemic, reflects Merck’s proactive strategy in enhancing its pipeline for obesity and related metabolic conditions.
Details of the Deal
Merck will initially pay Hansoh Pharmaceuticals $112 million for the exclusive rights to HS-10535, which is still at the preclinical stage of development. The agreement also paves the way for additional milestone payments totaling up to $1.9 billion, contingent upon the drug’s development and commercial success.
This collaboration comes at an opportune time as Merck’s CEO Rob Davis has expressed a keen interest in acquiring innovative assets that represent the next generation of therapies for obesity and diabetes management. Dean Li, the President of Merck Research Laboratories, emphasized that HS-10535 holds promise not only for weight management but also for potential cardiometabolic benefits, potentially expanding its applicability in treating related diseases.
The Obesity Treatment Landscape
The obesity treatment landscape is evolving rapidly as both big pharma and biotech firms race to replicate the efficacy of existing injectable GLP-1 (glucagon-like peptide-1) drugs through oral formulations. Current leaders such as Ozempic and Wegovy are revolutionizing obesity treatment but require injective administration, which some patients find inconvenient. Hence, the market is increasingly aspiring for an oral alternative that mimics these treatments’ effects without the need for injections.
Merck’s investment not only diversifies its portfolio but also enhances its competitive edge in a space that has attracted substantial investment. Competing firms, including Roche Holding AG and Pfizer Inc., are also in the race to develop new oral obesity medications, making it a crowded and potentially lucrative field.
Market Reactions
The announcement of the deal had immediate implications on the broader market. Shares of Viking Therapeutics Inc. and Structure Therapeutics Inc. saw significant declines—down 18% and 11%, respectively—amid speculation that their chances of partnering with a large pharmaceutical player like Merck have now diminished. Conversely, the deal initially provided a slight boost to Hansoh Pharma, although it later reversed, closing 2% lower in trading.
Merck shares, on the other hand, experienced a slight downturn of about 1.7% in U.S. trading after the announcement. Despite this, the long-term outlook for Merck’s investment hinges on the potential success of HS-10535 and its ability to capture a share of the burgeoning obesity market.
Financial Implications
As part of Merck’s strategy to integrate HS-10535 into its pipeline, the company will record a pre-tax charge of $112 million in its fourth-quarter earnings. The financial commitment underscores Merck’s belief in the drug’s potential long-term return as the global obesity crisis continues to escalate.
Trends in the Biotechnology Sector
The move is in line with a broader trend within the pharmaceutical industry, particularly related to GLP-1 programs originating in China. The industry saw AstraZeneca make headlines in November 2023, licensing an oral obesity candidate from Eccogene for $185 million upfront. Just months later, a consortium of U.S. investors created Kailera Therapeutics, banking $400 million to pursue a portfolio of GLP-1 programs from Jiangsu Hengrui Pharmaceuticals Co.
As analysts from Morgan Stanley pointed out, HS-10535 had not previously been a significant focal point for investors in Hansoh’s portfolio. This deal is seen as a de-risking strategy for Merck, especially as competition intensifies in the GLP-1 market.
Conclusion
Merck’s acquisition of HS-10535 is a noteworthy development in the pharmaceutical industry’s quest to address obesity—a condition that affects millions globally and poses substantial health risks. With the potential for extensive clinical testing and commercialization ahead, industry stakeholders will be keenly watching how Merck navigates this new venture and whether they can leverage HS-10535 into a profitable asset. As the competition heats up, the success of Merck’s strategic pursuits could significantly influence the direction and pace of innovation in obesity treatments moving forward.
