On June 26, Pfizer (PFE 0.55%) gave investors an update that they probably didn't like. One of its two candidates for treating diabetes and obesity, called lotiglipron, will not be developed any further because of safety concerns revealed in both its phase 1 and phase 2 clinical trials.
While the company still has one program for the highly lucrative set of indications in development, it's now undeniably on the back foot compared to competitors like Novo Nordisk (NVO 0.84%) and Eli Lilly (NYSE: LLY), which are already securing massive market shares with their diabetes and obesity medicines Ozempic and Mounjaro, respectively.
But can it recover from this setback, or are the other players guaranteed to win in these rapidly growing markets?
Don't get your hopes up
Even before discontinuing the lotiglipron program, Pfizer probably wasn't going to be a leader in the market for type 2 diabetes and obesity medicines. Its other candidate targeting the niche is called danuglipron, and it's currently in phase 2 clinical trials.
Much like Eli Lilly's and Novo Nordisk's approved medicines for those indications, danuglipron works by targeting the glucagon-like peptide-1 (GLP-1) receptors on cells in the pancreas and the brain.
But danuglipron is a bit behind the curve already. Lilly's Mounjaro, approved for sale in May 2022, affects GLP-1 receptors as well as another relevant biological target, glucose-dependent insulinotropic polypeptide (GIP) receptors. (In layman's terms, the GLP-1 and GIP receptors augment insulin secretion over and above the insulin secreted after food intake through receptors in the gut. The entire process ensures normal glucose tolerance levels in the human body.)
Sales of Mounjaro were worth more than $568 million in the first quarter of this year alone, and more sales are practically guaranteed to be on the way.
In terms of its scientific approach, the idea is that a drug that can affect two receptors will be more effective than a drug aiming for only one. There isn't any data directly comparing danuglipron to Mounjaro yet. But there is an analysis published in the Indian Journal of Endocrinology and Metabolism in late 2021 that suggests that Mounjaro is more effective at promoting weight loss and controlling blood glucose levels than semaglutide, which is the active ingredient in Novo Nordisk's Ozempic, Wegovy, and Rybelsus.
So even if danuglipron aces its remaining clinical trials and is approved within the next couple of years, it'll be entering a market where likely superior medicines have already been established. That'll require additional spending on marketing to have any hope of competing, which will reduce the profit margin of sales, potentially by a lot.
Furthermore, on June 26, Eli Lilly reported that one of the phase 2 trials investigating its candidate called retatrutide had been a smash hit, with patients experiencing a weight reduction of 24% after 48 weeks of treatment.
Retatrutide targets the receptors for GLP-1, GIP, and the receptor for glucagon, another key hormone, meaning that it has three different biological levers working toward the same objective instead of only two like Mounjaro.
It's highly probable that a triple-target approach will make Pfizer's one-target attempt look like a waste of time for patients, and perhaps for regulators, too. And considering that danuglipron and retatrutide are in the same phase of development, the two might be approved around the same time, which would be (very) bad news for Pfizer's chances of experiencing growth from the launch.
This isn't a reason to sell the stock
So it's a long shot that Pfizer will be a significant player in the market for obesity and diabetes medicines, at least for the next few years. While it could make acquisitions of promising drug developers in the space that might have better-quality candidates than danuglipron, like perhaps Viking Therapeutics, investors should not expect the pharma to beat Eli Lilly or Novo Nordisk.
But that doesn't mean shareholders should abandon all hope or sell their shares. Obesity and diabetes therapies might be a popular area of drug development right now, but none of the current set of market leaders have any obvious competitive advantages that might cement their lead in the long run.
Besides, Pfizer brought in $18.3 billion in the first quarter of this year, and it's developing medicines in a plethora of different segments. A bump in the road in one of its areas of niche interest doesn't say anything about its potential to continue growing over time; it reports that programs are discontinued or that clinical trials failed to live up to their promise quite frequently, and yet it still has many successes, too.
