It's obvious why Pfizer (PFE 0.56%) is eager to produce a medicine like Wegovy, Novo Nordisk's (NVO -0.51%) smash-hit obesity therapy that's essentially a slightly different version of its type 2 diabetes drug called Ozempic. With such a gargantuan market at stake, there's likely more than enough room for multiple major competitors to find a home.
But that doesn't mean the contenders have an equal chance of winning any competitive fight once such a conflict eventually occurs. And even with Pfizer's latest attempt at making a Wegovy competitor, it could struggle significantly relative to Novo Nordisk in this area. Here's why.
Pfizer is the underdog here
Right now, Pfizer only has two programs for obesity in development, both of which are in phase 1 clinical trials. It's lagging far behind Novo Nordisk, and it'll be years before it can get either program to the market, assuming that everything goes right along the way. That will take some time to change, but there's already another plan afoot.
Recently, Pfizer signed an expansive collaboration with Flagship Pioneering, one of the largest and most prestigious venture capital (VC) groups in the biomedical sector. The pair agreed to work on up to 10 candidates together, leaving Pfizer liable to pay up to $700 million in milestone fees, royalties, and other payments. So far, the target diseases for those candidates have not been released, save for one, which is intended to treat obesity.
In that effort, one of Flagship's portfolio biotechs, ProFound Therapeutics, will be taking the lead. ProFound focuses on developing protein-based medicines, though it is still in the discovery stage at the moment, meaning that it has no clinical trials yet. Try to remember that ProFound's focus is on proteins, as we'll be diving into more detail in a moment.
But first, there are a couple of important implications of this effort. The most obvious one is that Pfizer's work with ProFound and Flagship, though positive for its long-term growth potential, will not significantly accelerate its entry into the weight loss market. The timeline is still several years at the very best. It will, however, provide a backup plan in case its other programs that are in clinical trials today ultimately fail to deliver.
That's somewhat positive news. However, the subtler implication is that if a suitable drug eventually results from Pfizer's collaboration with ProFound, it will probably be more difficult and expensive to manufacture than Novo's Wegovy. Here's why.
It gets more complicated
The molecule that's the active ingredient of Wegovy is called semaglutide, and semaglutide is technically what's known as a peptide. For our purposes here, you can think of peptides as molecules that are constructed from a chain of smaller components (amino acids), which come in a few different types.
But there's a somewhat arbitrary limit to the confines of the term "peptide" when it is used correctly. After enough of those smaller components are chained together in sequence, the chain itself becomes a large enough molecule that scientists refer to it as a protein to denote that it's significantly more complex than a mere peptide.
Each additional component of the therapy is a complication of the manufacturing process. That's before even getting into more technical matters, like the difficulty of controlling the conformation (shape) of the protein's intended structure after the components are assembled and linked together in a chain. Those finer points are not at all trivial to figure out in the laboratory, never mind in the context of the additional concerns that are attendant with manufacturing a therapy at scale.
To recap, Pfizer's collaborator ProFound is a protein-focused biotech, making it distinct from the other operators that make somewhat simpler peptide-based medicines like semaglutide. Scientists don't use these terms loosely even if the terminology is arbitrary at the margin.
See where this is going? The candidates that Pfizer is working on with ProFound are going to be bigger molecules that are very likely to be significantly more complex to produce than what Novo Nordisk has on the market and is struggling to manufacture enough of, despite billions of dollars of investment in expanding its output capacity.
Pfizer's entrants could potentially be safer, more convenient for patients, and more effective than Novo's, but those upsides are not at all guaranteed in comparison to the near-certainty of dramatically higher manufacturing costs.
No matter how you slice it, there's a significant risk of a slimmer-than-desired gross margin for Pfizer with these candidates. There's also a risk that the price point it would need to charge to justify the costs of manufacturing would be prohibitively high for patients to pay. For such a lucrative market, the pharma is thus facing a bearish approach vector where it's a latecomer as well as an underdog.
Can Pfizer beat Novo Nordisk in the obesity market? Probably not, so don't bet on it. There are still plenty of other reasons that make it a stock worth buying, of course. But if you're looking for exposure to growth from a business competing in the weight loss market specifically, there's no contest between these two today, and by the looks of it, there won't be a contest in the future either.
