Pharma companies need to beef up M&A right now, says Mizuho's Jared Holz

Key Concepts

• Weight loss drugs: Monthly injections, oral medications, amylin.
• Clinical trial data: Weight loss percentage, side effects, discontinuation rates.
• Pharmaceutical companies: Amgen, Novo Nordisk, Eli Lilly, Merck, Bristol-Myers Squibb, Pfizer.
• Market share and competition: Positioning of different companies in the obesity drug market.
• Pharma multiples: Valuation metrics for pharmaceutical companies.
• Revenue degradation: Loss of revenue due to patent expirations or other factors.
• M&A: Mergers and acquisitions in the biotech and pharma sectors.
• Biotech vs. Pharma: Investment strategies in biotech versus traditional pharmaceutical companies.

Amgen's Weight Loss Shot

• Amgen's once-monthly weight loss shot showed promising results, with patients without type 2 diabetes losing an average of 20% of their body weight after one year.
• However, the company reported a high rate of side effects and discontinuations.
• Amgen plans to adjust its dosing schedule in a phase three trial to address these issues.
• The stock dropped almost 6% due to these disappointing results.

Obesity Drug Race: Eli Lilly's Dominance

• Eli Lilly is emerging as the leader in the obesity drug race due to positive data from its oral candidate (safe and clean liver profile) and injectable amylin (weight loss with less muscle mass loss).
• Novo Nordisk, despite having the largest market share (33%), is facing challenges due to disappointing cardiovascular outcome trial (CVOT) data.
• The analyst believes that Eli Lilly is significantly ahead of its competitors, stating, "It's Lilly and then everybody else."

Weight Loss Percentage and Patient Preferences

• The analyst questions the demand for drugs offering extremely high weight loss percentages (e.g., 25%).
• He suggests that such high percentages might only be sought by individuals with a BMI significantly higher than 30.
• The focus should be on finding a balance between efficacy and tolerability.

Amgen's Valuation and Pipeline

• Despite the disappointing weight loss drug data, Amgen's stock is not considered cheap at 12.5 times next year's numbers.
• The analyst points out that pharma multiples have come down, with the average around 10.
• Amgen faces a significant revenue cliff, with over 50% of its revenue potentially disappearing by the end of the decade.
• The analyst prefers to wait for Amgen's stock to decline further, as other peers have already sold off.

Biotech vs. Pharma Investment

• Biotech has experienced a decent run recently, with potential catalysts for M&A.
• Despite concerns about revenue degradation at the pharma level, there is a need for increased M&A activity to address pipeline gaps.
• Even companies like Pfizer, which have already made six deals since the pandemic, may need to pursue further acquisitions.

Conclusion

Eli Lilly appears to be the frontrunner in the obesity drug market due to its promising clinical trial data and diverse pipeline. Amgen's weight loss drug faces challenges related to side effects and tolerability. The analyst suggests caution regarding Amgen's valuation and prefers to wait for a more attractive entry point. The biotech sector is showing signs of recovery, with potential for increased M&A activity to address revenue degradation in the pharma industry.