Roche shares pop 5% on $5.3 billion obesity drug deal with Zealand Pharma

Swiss pharmaceutical giant Roche said Wednesday that it had struck a deal worth up to $5.3 billion to develop Danish biotech Zealand Pharma's obesity drug candidate, as the two firms seek to compete in the burgeoning weight loss drug market.

The deal will see the two companies co-develop and co-commercialize petrelintide, Zealand Pharma's amylin analog as a standalone therapy, as well as a fixed-dose combination with Roche's lead incretin asset CT-388. 

Under the agreement, Zealand Pharma will receive upfront cash payments of $1.65 billion, with the potential of milestone payments taking the total to up to $5.3 billion, depending on phase-3 trials and sales development, Roche said in a statement.

Shares of Zealand Pharma jumped 33.5% by 1:00 p.m. London time, while Roche added 5.3%.

Shares of obesity drug giant Novo Nordisk, meanwhile, slipped 3.9% during Wednesday's session as Eli Lilly dipped 1.5% in pre-market trade.

Zealand Pharma CEO and President Adam Steensberg told CNBC that the deal showed the two companies' "strong commitment to lead in the obesity space in the future."

"Roche has convinced us that they have ambition to take leadership in this therapeutic space," Steensberg told CNBC via video call Wednesday.

Manu Chakravarthy, global therapy area head and cardiovascular, renal and metabolic (CVRM) product development lead at Roche, added that petrelintide would be a "complementary" addition to the Swiss firm's existing weight loss portfolio, both as a standalone and combinable treatment.

Steensberg said Zealand had received a "high degree of interest" since launching partnership discussions last year. However, he noted that Roche was "by far the most desirable," citing the Swiss firm's prior developments in the obesity drug market, including its acquisition of GLP-1 maker Carmot Therapeutics.

He added that a partnership with market leaders Novo or Lilly had been "unlikely" given their focus on existing GLP-1 obesity drug franchises Wegovy and Zepbound, respectively.

Bank of America Securities said in a note Wednesday that the Roche partnership was a "best case scenario for Zealand," given its existing work across both GLP-1s and amylin mechanisms.

The deal, which is expected to close in the second quarter, will see Roche and Zealand jointly commercialize petrelintide in the U.S. and Europe, with the two sharing profits and losses on a 50/50 basis. Roche will meanwhile obtain exclusive commercialization rights in the rest of the world.

Zealand Pharma has long pointed to amylin analogs as the "next generation" of weight loss treatment. They work by mimicking a hormone that is co-secreted with insulin in the pancreas to increase satiety. This differs from GLP-1 agonists, which mimic incretin hormones produced in the gut to suppress appetite and regulate blood sugar.

"In contrast to GLP-1s that make make people lose appetite, petrelintide can help people feel fuller faster," Steensberg said.

With the new treatment, the two companies are hoping to better respond to the heterogeneous demands of obesity treatment and its associated comorbidities, Roche's Chakravarthy said.

"It's not just about the weight. You need that to a certain degree, but it's also the quality of the weight loss, the durability of response, the ability to switch between mechanisms," he said via video call.

Petrelintide is undergoing phase two trials, with plans for phase three currently underway. Steensberg said that the companies hope to bring the product to market by 2030.

BofA analysts said in a separate note Wednesday that Zealand Pharma's petrelintide was "a potentially best in class amylin," targeting 15% to 20% phase three weight-loss as a monotherapy.

It comes after a second late-stage trial of Novo Nordisk's next-generation obesity drug CagriSema disappointed investors on Monday after recording lower than expected weight loss outcomes.

Shares dropped more than 6% after the latest readout showed the drug helped obese or overweight adult patients with type 2 diabetes drop 15.7% of their weight after 68 weeks, below the 25% previously forecast.