Pfizer's (PFE.US) R&D setback sparks takeover speculation that the new shares of diet pills have soared

The Zhitong Finance App learned that Pfizer (PFE.US) stopped developing Danuglipron, an oral diet drug that has received much attention. Investors are betting that this setback may stimulate Pfizer to seek mergers and acquisitions. Shares of several biotech companies developing diet pills rose on Monday. Viking Therapeutics (VKTX.US) rose nearly 11%, GPCR.US (GPCR.US) rose about 19%, Terns Pharmaceuticals (TERN.US) rose 8%, and Metsera (MTSR.US) surged about 30%.

Jeff Jonas, portfolio manager at Gabelli Funds, said, “Will Pfizer buy Viking or another company? I think that's why these companies' stock prices have risen so much.”

Pfizer previously said it would stop developing Danuglipron, a much-publicized oral weight loss drug, due to potential drug-induced liver damage in a patient participating in a clinical trial. Pfizer has always tried to compete with Novo Nordisk (NVO.US) and Lily.US (LLY.US) in the weight loss treatment market, but the company has lagged behind competitors in developing weight loss drugs.

The end of Danuglipron R&D could leave a gap in Pfizer's product portfolio. Meanwhile, executives said Pfizer has up to $15 billion in capital available for future transactions.

Bloomberg Intelligence analysts John Murphy and Michael Shah said Pfizer “may turn to external innovation because the acquisition of another GLP-1 drug — Vikings, Schoodi Biotech, and Terns may be the target of the acquisition — may be strategic.”

This year, Viking is advancing late-stage trials of its experimental drug VK2735, while Schoodi Biotech's aleniglipron is undergoing mid-term trials. Metsera's drug candidate is in phase 1 and phase 2 studies, while TERNS said it will advance its terN-601 phase 2 trial this year.

Smaller drug developers often partner with larger pharmaceutical companies when their assets are nearing commercialization stage. This type of cooperation is particularly likely in the weight loss drug market because patients are in high demand for diet pills, and new entrants need to compete with large pharmaceutical companies such as Novo Nordisk and Eli Lilly.