Small caps that can challenge Novo Nordisk and Eli Lilly in the obesity drug market

Following the meteoric success of Novo Nordisk and Eli Lilly’s semaglutide-based weight-loss injections, the obesity and metabolic disease treatment sector has drawn heightened investor attention. Since Ozempic was approved in December 2017, Novo Nordisk’s stock has gained 125%, pushing its market capitalization to $252 billion. Eli Lilly, after launching Zepbound in November 2023, has seen its share price climb 23% and its market cap reach $681 billion. Morgan Stanley estimates the global market for obesity drugs could exceed $150 billion by 2035.

In parallel, treatment for nonalcoholic fatty liver disease (NAFLD) is advancing. In 2024, the FDA approved the first drug for patients with liver fibrosis linked to NAFLD – Rezdiffra, developed by Madrigal Pharmaceuticals. The disease affects up to 8 million people in the U.S., and the patient base continues to expand, creating a significant base of demand for new therapies.

Against this background, investor interest is turning to players who will be the first to bring new drugs to market and compete with the incumbent leaders. Enter Altimmune, Terns Pharmaceuticals, and Viking Therapeutics.

The fundamentals remain favorable: demand for therapies is rising, regulators are ready to accelerate approvals, and investor interest ensures capital access. Major investment banks are already assigning ambitious target prices to these biotechs, highlighting obesity treatments and NAFLD as key growth drivers in the sector.

Altimmune, a biotech with a market cap above $320 million, is developing a promising drug called pemvidutide, a hybrid of the GLP-1 hormone and glucagon-like peptide. Originally conceived as a weight-loss treatment, it is now being used to treat NAFLD. Earlier this summer, Altimmune released results from a phase II clinical trial on a limited group of patients: after 24 weeks of pemvidutide therapy, 31% of participants achieved a significant reduction in liver fibrosis of 60% or more, compared with just 8% in the placebo group. At higher doses, patients also lost a substantial amount of weight, pointing to the drug’s potential dual use, both against obesity and fatty liver disease.

Jefferies analysts note that Altimmune is on track for a pivotal phase III trial. The company is in discussions with regulators about the design of the study: in the U.S., options include noninvasive metrics and biopsy analysis using AI as trial endpoints. In Europe, a similar, PathAI system has already been approved, which would allow for more accurate assessments of treatment outcomes and reduce the need for repeat biopsies.

In early August, Jerry Durso took over as chair of the board and emphasized a commercial strategy signaling the company’s readiness to bring pemvidutide to market. In addition, Altimmune is testing the drug for alcoholic liver disease and addiction.

Financial results point to disciplined spending. In the second quarter, free cash flow stood at $183 million, up 39% from $131.9 million as of December 31. The net loss narrowed to minus $22.0 million from minus $24.6 million a year earlier, underscoring prudent cost control during expensive trials. Wall Street analysts are broadly upbeat on the stock: eight of 10 recommend it as a "buy." On August 12, Jefferies reiterated its “buy” rating with a target price of $28 per share, implying nearly 7.5 times upside, contingent on pemvidutide’s successful commercialization.

Terns Pharmaceuticals is taking a different route in obesity treatment by developing oral pills rather than injections. Its lead candidate, TERN-601, is a small molecule designed to activate the GLP-1 receptor. With only injectable therapies currently on the market, the emergence of a convenient tablet would represent a major breakthrough. This helps explain the surge of investor interest: initial results from a key phase II trial are expected in the beginning of the fourth quarter. Terns shares have gained 33.5% since the start of the year and 85% over the last three months.

Terns is not alone in this pursuit. Madrigal, after securing FDA approval for its NAFLD therapy, obtained exclusive global rights from China’s CSPC Pharmaceutical Group to develop and commercialize its oral GLP-1 candidate. Pfizer recently halted development of its danuglipron pill due to severe side effects, which underscores the risks in this segment. Terns’ drug is based on a similar chemical scaffold, but the company claims a refined structure and a safer profile. Eli Lilly’s recent results with its orforglipron tablet showed diabetes patients lost 8% of their body weight over 72 weeks compared to placebo. For Terns, the decisive catalyst will be phase II readouts on both weight-loss efficacy and tolerability.

Financially, Terns is well positioned for a small biotech. At the end of the second quarter, the company held $315 million in cash and reported no debt, saying it is funded through 2028 without needing to raise additional capital. Operating expenses inched up year over year from $25 million to $27 million, while the loss per share narrowed 16% to minus $0.26.

Citizens JMP believes successful results would establish Terns as a competitive player in the oral weight-loss market. The firm set a $20 per share target price, implying nearly 3x upside from the August 16 close, and emphasized the flexibility that Terns’ multi-product portfolio provides. Overall, coverage analysts are positive: seven of nine rate the stock a "buy."

Terns thus stands out as a rare small-cap biotech with a strong cash cushion and several potential growth drivers, the closest being pivotal trial results expected later this year.

Against the backdrop of the previous two companies, Viking Therapeutics looks like a larger and more ambitious player. It is simultaneously developing two key areas of metabolic therapy – for obesity and NAFLD – both of which have already delivered strong clinical results.

In the summer, Viking presented data from a phase II study of its oral formulation of VK2735 in overweight patients. At the highest dose, weight loss reached 11-12% over 13 weeks compared to about 1% with placebo, meaning an advantage over placebo of roughly 10 percentage points. This compares with Eli Lilly’s leading oral candidate, orforglipron, which showed an 8 percentage point advantage over a longer period. Even moderate doses of VK2735 achieved a 7-9% reduction, which opens the door to future maintenance regimens. The main risk is tolerability: nausea was reported in 55% of patients on high doses (40% with placebo), and some discontinued treatment early. Viking expects to improve the safety profile through more gradual dose escalation.

Morgan Stanley and JPMorgan analysts view the efficacy of VK2735 as convincing, with future success depending on optimizing the regimen. In parallel, Viking is investigating an injectable version of the drug: following strong results from a phase II study last year, the company has launched two large 78-week trials. If the oral pill encounters obstacles, Viking is hedged with the injectable or a potential combination approach.

Viking is also mounting a strong challenge to Madrigal in NAFLD therapy. Just months after Rezdiffra’s approval, the company presented final phase II results for VK2809 – which were among the most impressive to date in the field. At 52 weeks, up to 75% of patients achieved disease resolution by biopsy compared to 29% in the placebo group, while fibrosis improved by at least one stage in 44-57% versus 34% with placebo. These results position VK2809 as a contender for market leadership.

Financially, Viking is stronger than many peers of similar size. As of June, the company held $808 million in cash and carried no debt. Morgan Stanley believes the cash is sufficient to finance multiple phase III programs. Viking reported a net loss of minus $65.6 million (minus $0.58 per share) in the second quarter, compared to $22.3 million a year earlier, reflecting an expanded research program. Despite the higher spending, the balance sheet remains solid, and the company’s market cap stands at about $2.7 billion.

On August 19, Morgan Stanley reaffirmed its "overweight" rating on Viking with a $98 per share target price, implying potential upside of 4.3x from the September 17 close. Of the 16 analysts covering the stock, only one rates it “hold,” while the rest recommend “buy.” The optimism reflects Viking’s dual portfolio of promising drugs and its focus on maintenance regimens – a potentially critical advantage in the weight-loss market, where patients want to sustain results over the long term.

The AI translation of this story was reviewed by a human editor.