M&A deal volume in the obesity drug sector slimmed down in 2024 compared to 2023, while the industry holds its breath awaiting new technologies and regulatory clarity, sector experts said.

The slowed dealmaking is just down to a temporary lack of appetite, rather than a long-term tightening of the belt – future M&A prospects in the sector remain exciting, they said.

The obesity pharma space had a jumbo M&A year in 2023, logging 21 deals with a total USD 7.5bn deal volume globally, Mergermarket data shows. In 2024, this shrunk to 20 deals at a total USD 1.4bn volume.

As in the broader healthcare space, there was a distinct lack of large deals in the space in 2024. Most of last year’s deals were snack-sized VC rounds and minority investments, compared to the large helpings in 2023 including Roche’s [SWX:RO] USD 3.1bn acquisition of Carmot Therapeutics.

This may be surprising and counterintuitive, given how much attention and headlines the sector has gotten in the past couple of years. Obesity drugs are expected to reach up to 550 million patients by 2040, becoming the largest drug class, according to McKinsey & Company.

But there are several reasons for the dynamic, sector experts said.

Firstly, the field is an emerging one, and new technologies and drug delivery methods are evolving. Injected GLP-1 agonists were the first safe and effective drugs, and these have grown strongly and have driven the share prices of Eli Lilly [NYSE:LLY] and Novo Nordisk [CPH:NOVO-B], Paul Major, portfolio manager at Bellevue Healthcare Trust, said.

The fact that these drugs are injected, however, is not ideal, and the market is looking to orally administered drugs, i.e. taken in pill form, as an obvious first improvement. Notably, Eli Lilly expects to present Phase III clinical data for its oral GLP-1 agonist orforglipron in mid-2025, Major said.

It is likely that the M&A market is in wait-and-see mode in anticipation of this event, with players holding off to decide how they will position around Lilly’s data, Major said.

“The puzzle pieces will start falling into place in 2H25”, Major commented.

Injection is not the only issue with GLP-1 agonists, however. Some other problems are side effects including nausea, vomiting, and diarrhoea; and loss of muscle mass along with body fat. There is plenty of innovation ongoing in the industry to develop the next generation of weight loss drugs, with alternative mechanisms of action, Major said.

These alternatives include amylin analogues, glucagon agonists, GIP agonists, GLP-2 agonists, and mitochondrial uncouplers, many of which are being investigated as combination therapies with GLP-1 agonists, Major and Arvin Abraham, Partner at Goodwin, said. As of November last year, 74 unique, novel mechanisms of action were in the pipeline, with startups leading the innovation, according to McKinsey.

Data readouts are expected in mid-this year for “dozens” of clinical trials for obesity drugs with alternative action, according to Major.

This fast evolution of a market that is still very immature is likely a main factor for the current subdued dealmaking activity, Major and Abraham agreed.

“The injectable GLP-1 space is done. It wouldn’t be where I’d invest my capital. People want to go to the next generation of products”, Major said.

Ballooning valuations

There are other factors too. In 2023, we saw an explosion of M&A activity, and skyrocketing company valuations, Abraham said. But valuations have been driven up to a point where they make some companies unattractive as targets, he said.

Indeed, share prices of pharmaceuticals companies with high portfolio exposures to obesity drugs peaked in mid-2024 before cooling off in the latter part of the year, Mergermarket analytics show.

Novo Nordisk’s stock price gained 47% in the first six months of 2024, to become Europe’s largest listed company by market capitalisation, before giving up all of those gains in the remainder of 2024.

Shares in Novo Nordisk closed yesterday at DKK 632 for a market cap of DKK 2.8trn (EUR 376bn).

At the same time, governments and payors are scrutinizing the pricing for these very expensive drugs, Abraham said. As the obesity drug space is new and immature, potential acquirers might be inclined to wait until the regulatory dynamic is clearer, he said.

Another risk factor is the fact that production capacity is limited for GLP-1s, which could stymie businesses from growing, Abraham continued. This was the driver behind Novo’s USD 16.5bn acquisition of Catalent last year. (Catalent being a manufacturing services provider, CDMO, rather than a drug developer, the deal has not been included in the dataset for this article.)

The ongoing supply chain constraints may indeed drive M&A in the manufacturing/CDMO space, Abraham said.

Activity in 2025 and beyond

Looking into the future, M&A will much more likely be in adjacent innovations to existing injectable GLP-1 obesity drugs with novel mechanisms of action; orally administered drugs; and production capacity, Abraham and Major agreed.

Some companies that could make attractive takeover targets in this context include Danish Zealand Pharma [CPH:ZEAL], Viking Therapeutics [NASDAQ:VKTX], Altimmune [NASDAQ:ALT], Terns Pharmaceuticals [NASDAQ:TERN], and Structure Therapeutics [NASDAQ:GPCR], Major said.

There is a universe of drugs that represent the next generation, many of which are developed by small biotechs that will need to partner with or sell to big pharma to finance Phase III development costs, Major said.

Italian biotech Resalis Therapeutics sees its existing investor, Sanofi [EPA:SAN], as the ideal buyer for the company, its CEO told this news service in November. Resalis’ lead candidate, RES-010, is an oligonucleotide designed to target and inhibit microRNA miR-22, which has a range of functions in molecular pathways affecting metabolic disorders. The treatment is in development for obesity and other metabolic disorders, with first clinical trials to start shortly. The company is considering taking on further funding.

UK-based biotech startup Dia Beta Labs, developing treatments for obesity and type 2 diabetes, has already had buyer interest from pharma companies, its CEO told this news service in December. The company is currently seeking further funding, with the ultimate goal to partner with or exit to a pharma company. Its candidate drug, DBL002, promises similar benefits to GLP-1 agonists, without the harmful side effects. DBL002 also targets greater fat loss compared to muscle loss. It will be investigated as combination therapy with GLP-1 analogues.

Charlottesville, Virginia-based Rivus Pharmaceuticals will look to raise capital in the second quarter of this year via a private round or IPO, the company’s CEO told this news service in January. The company’s lead compound, HU6, is an oral mitochondrial uncoupling activator, which is in Phase II clinical trials for other cardiometabolic diseases and in Phase I clinical trials for obesity. The company is expecting a data readout in 2Q that will be the catalyst for a capital raise.

“This is a very immature market. It will look completely different in 10-20 years”, Major concluded.