Small weight loss drugmaker Zealand sinks as new safety data spooks investors

Shares of Danish biotech Zealand Pharma, which specializes in developing therapies for obesity and other metabolic disorders, plunged almost a quarter at the start of trading in Copenhagen on Monday. Investors were spooked by new safety data on its experimental weight-loss drug.

Zealand shares opened sharply lower in Copenhagen on Monday. By 12:37 local time (15:37 Astana time), they were down almost 24% at DKK248.60 apiece (around $38.30). As a result, Zealand’s market capitalization fell to around DKK17.56 billion (about $2.7 billion).

The decline followed the release of new clinical data on its experimental obesity treatment, survodutide. While the drug proved effective at promoting weight loss in a late-stage trial, 19% of patients discontinued treatment due to gastrointestinal adverse events. By comparison, the figure was 2.9% in the placebo group.

The trial was conducted by pharmaceutical company Boehringer Ingelheim. If the drug receives regulatory approval, Zealand will be entitled to royalty payments, according to a company press release.

Zealand shares also trade over the counter in the U.S. No trades had been recorded on June 8 as of this writing. On Friday, the stock gained 1.5% to $49.80 per share.

“A 19% treatment discontinuation rate due to... adverse events... is not a rounding error, and nausea, vomiting, diarrhea, and constipation incidence at the levels reported here sit well above what we consider commercially viable against [rival drugs] tirzepatide and semaglutide,” Citi analysts wrote in a note cited by CNBC.

Safety remains the key issue, Barclays said, as reported by CNBC. The bank’s analysts believe the high discontinuation rate, with more than 40% of patients reporting vomiting, could limit survodutide’s commercial potential.

Low tolerability is also likely to limit the drug’s use in the obesity market, Goldman Sachs analysts said, according to MarketWatch.

The market is currently dominated by Wegovy from Danish pharmaceutical giant Novo Nordisk and Zepbound from Eli Lilly. However, a wide range of companies, from big pharma to small-cap biotechs, are developing their own obesity treatments.

Zealand shares have fallen 47% year to date. The biggest drop came in early March, when the stock suffered its worst trading day on record after disappointing trial data for another experimental obesity drug, CNBC noted. Even so, Wall Street remains broadly optimistic on the stock: It has 12 "buy" calls from analysts, versus six "hold" ratings and one "sell" recommendation.