Weight-loss drug developers rise after Roche agrees to buy Carmot

Shares of several weight-loss drug developers, including Viking Therapeutics (VKTX) and Terns Pharmaceuticals (TERN), were on the rise on Monday after Roche (RHHBY) agreed to buy Carmot Therapeutics for up to $3.1B. Commenting on the news, BMO Capital said it continues to view Terns as a compelling opportunity as it believes the company is well-positioned to participate in obesity market upside.

OBESITY DRUGMAKER ACQUISITION: Roche announced the entry into a definitive merger agreement to acquire Carmot Therapeutics, a privately owned U.S. company. Carmot’s R&D portfolio includes clinical stage subcutaneous and oral incretins with best-in-class potential to treat obesity in patients with and without diabetes, as well as a number of preclinical programs. Under the terms of the agreement, Roche will pay Carmot’s equity holders a purchase price of $2.7B in cash at the closing of the transaction. Additionally, Carmot’s equity holders are entitled to receive payments of up to $400M depending on the achievement of certain milestones.

Upon closing of the transaction, Roche will obtain access to Carmot’s current R&D portfolio including all clinical and pre-clinical assets, with Carmot and its employees joining the Roche Group as part of Roche’s Pharmaceuticals Division. The transaction is subject to the expiration or termination of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 and other customary closing conditions. The closing of the transaction is currently expected to take place in the first quarter of 2024.

COMPELLING OPPORTUNITY: BMO Capital noted that the news of Roche’s acquisition of Carmot Therapeutics was driving Terns Pharmaceuticals shares up given the readthrough to its oral GLP-1. The firm continues to view Terns as a compelling opportunity given its oral GLP-1, TERN-601, ahead of the second half of 2024 Phase 1 data readout. BMO reiterates an Outperform rating on Tern’s stock with a price target of $18 as it believes Terns is well-positioned to participate in obesity market upside.

Of note, the success of weight loss drugs such as Wegovy and Mounjaro has rejuvenated the pursuit of new obesity treatments. Novo Nordish (NVO) and Eli Lilly (LLY) remain, for now at least, the market leaders with drugs that target receptors of the GLP-1 hormone to mimic the hormone’s effects of helping people feel as if they’re full. On Friday, Pfizer (PFE) said it would stop developing the twice-daily version of its experimental weight loss pill, danuglipron, after obese patients taking it lost significant weight but also experienced high rates of adverse side effects in the company’s clinical trial.

Pfizer’s drug is not the only casualty in the space. Back in 22020, Eisai’s (ESAIY) lorcaserin was removed from the market due to increased risk of cancer in patients. Meanwhile, Sanofi’s (SNY) and Aventis’ obesity drug rimonabant was withdrawn from the market in 2008 due to the risk of serious psychiatric problems, such as suicide. Abbott’s (ABT) sibutramine was also discontinued on increased cardiovascular events.

PRICE ACTION: In Monday morning trading, shares of Tern have gained over 16% to $6.06, while Viking’s stock has jumped 11% to $14.44. Additionally, Altimmune (ALT) has soared over 35% to $4.38, while Structure Therapeutics (GPCR) has gained about 5% to $62.50.