The Novo and Lilly challenge: which small-caps will be able to compete in the obesity therapy market

Following the meteoric success of Novo Nordisk and Eli Lilly's semaglutide hormone-based weight loss injections, the obesity and metabolic disease treatment sector has come under investor scrutiny. Since the approval of Ozempic in December 2017, Novo Nordisk's stock has risen 125% and market capitalization has reached up to $252 billion. Eli Lilly, after the release of Zepbound in November 2023, has seen its stock price rise 23% and market capitalization increase to $681 billion. Morgan Stanley analysts estimate that the global market for obesity drugs could exceed $150 billion by 2035.

In parallel, therapy for nonalcoholic fatty liver disease (NASH) is being developed. In 2024, the FDA approved for the first time a drug for patients with liver fibrosis (a complication resulting from fatty liver disease) on the background of NASH - rezdiffra from the pharmaceutical company Madrigal. The disease affects up to 8 million people in the US, and the number of patients is growing, forming a significant potential for new solutions.

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

- Altimmune is developing combination approaches and implementing artificial intelligence techniques to improve the effectiveness of NASH therapies.

- Terns Pharmaceuticals is focusing on patient convenience by developing GLP-1 analogs in tablets, a potential alternative to injections.

- Viking Therapeutics is active in two areas at once: weight loss products and liver disease therapies.

Fundamental factors remain favorable: demand for drugs is growing, regulators are ready to accelerate approval of innovations, and investor interest provides companies with access to capital. Major investment banks are already assigning high targets to the shares of these pharma companies, seeing the obesity treatment segment and NASH as one of the key growth drivers in biotech.

Altimmune, a biotech company with a capitalization above $320 million, is focused on a promising drug called pemvidutide (a hybrid of GLP-1 hormone and glucagon-like peptide). It was originally developed as a weight loss treatment, but the company is now focusing on treating NASH. Earlier this summer, Altimmune published results from a Phase 2 clinical trial on a limited group of patients. During 24 weeks of pemvidutide therapy, 31% of participants managed to significantly reduce liver fibrosis - by 60% or more - while in the placebo group such an effect was observed only in 8%. Moreover, at a higher dose of the drug, patients also lost a noticeable amount of weight, which indicates the possibility of dual use of the drug - simultaneously to combat obesity and fatty hepatosis of the liver.

Jefferies analysts note that the company is well on its way to a large-scale Phase 3 clinical trial. Altimmune is discussing with regulators the design of the crucial, final study: in the US, they are considering using non-invasive metrics and analyzing biopsies with artificial intelligence as endpoints for NASH clinical trials. In Europe, a similar PathAI system has already been approved. This will allow the company to more accurately assess treatment results and reduce the number of repeat biopsies.

In early August, the company's board of directors was led by Jerry Durso, who is emphasizing a commercial strategy that signals the company is ready to bring pemvidutide to market. Altimmune is also testing pemvidutide in alcoholic liver disease and addiction.

Altimmune's second quarter free cash flow was $183 million - up 39% from $131.9 million at December 31, 2024. Net loss was $22 million versus $24.6 million a year earlier, suggesting prudent cost control during expensive trials. Analysts on Wall Street are positive, with a majority - 8 out of 10 in total - advising to buy Biotech shares. On August 12, Jefferies gave Altimmune's stock a Buy rating with a target price of $28 per share, which implies an upside of about 7.5 times its current value, provided the company can successfully bring its pemvidutide drug to market.

Terns Pharmaceuticals is taking a different route - the company is developing oral obesity pills - instead of injections. Right now, the company's lead candidate is TERN-601, a small molecule that activates the GLP-1 receptor. So far, only injections are on the market, so the emergence of a more convenient tablet will be an important breakthrough in the therapy of this disease. This explains the increased interest in Terns shares: the first results of the second, important phase 2 trial are expected at the beginning of the fourth quarter of 2025. They are up 33.5% since the beginning of the year and 85% in the last three months.

Terns is not unique - other companies are also engaged in the development of oral GLP-1. For example, Madrigal, having received approval for its NASH therapy drug, has obtained exclusive global rights from China's CSPC to develop and commercialize their oral GLP-1. Pfizer recently halted development of the danuglipron pill due to severe side effects, highlighting the risks of this trend. Terns' drug is based on a similar chemical base, but the company claims an improved structure and safer profile. Recent results from a study of Eli Lilly's orforglipron tablet showed that trial participants with diabetes lost 8% of their weight over 72 weeks compared to a placebo. A key catalyst for Terns' quotes will be the results of the Phase 2 study in terms of weight loss and tolerability of the drug.

Terns is in a strong financial position for a small biotech. Terns has $315 million in cash at the end of Q2 2025 - the company said it has enough cash through 2028 without raising additional capital, given its lack of debt. Terns' operating expenses rose slightly year-on-year, from $25 million to $27 million, while its loss per share declined 16% to $0.26 year-over-year.

According to analysts at Citizens JMP, successful results of the study will allow Terns to competitively compete in the market of oral weight loss products. Citizens' price target for the company's stock is $20, suggesting a potential upside of nearly three times (from the closing price on August 16). Citizens emphasizes that Terns' multi-product portfolio makes it flexible for business. The majority of analysts advise buying the company's stock, 7 out of 9.

Terns is a rare example of a small biotech company with a large financial safety cushion and several "trumps up its sleeve," the closest being a potentially successful trial as early as 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 - obesity treatment and NASH - both of which have already demonstrated strong clinical results.

Viking presented data from a Phase 2 study of its oral formulation of VK2735 in overweight patients in the summer of 2025. At the high dose, weight loss reached 11-12% over 13 weeks versus about 1% in placebo, meaning the "over placebo" effect was about 10 percentage points. This compares to Eli Lilly's best oral candidate, orforglipron's 8 p.p. over a longer period of time. In addition, even moderate doses of VK2735 showed a 7-9% reduction, opening up the possibility of future maintenance regimens. The main risk is tolerability: nausea was reported in 55% of patients on high doses (40% in placebo), and there were cases of early discontinuation of therapy. The company expects to mitigate the safety profile by more gradual dose escalation.

Morgan Stanley and JPMorgan analysts believe that the efficacy of VK2735 is convincing, and further success depends on optimizing the regimen. In parallel, the company is investigating the injectable form of the drug: after the successful results of a 2-phase study last year, two large long-term trials for 78 weeks have been launched. If the weight loss pill meets obstacles, Viking is insured by an injection or a combination approach.

Viking is confidently challenging Madrigal in NASH therapy. Just a few months after rezdiffra's approval, the company presented final Phase 2 results for VK2809 - and they were among the best in studies of the disease. At 52 weeks, up to 75% of patients achieved NASH resolution by biopsy versus 29% in the placebo group, and improvement in fibrosis by one stage or more was seen in 44-57% versus 34% in the placebo group. This drug efficacy makes VK2809 one of the top contenders for segment leadership.

Viking's financials are stronger than many biotechs of similar size. As of June 2025, the company had $808 million in cash with no debt, which Morgan Stanley estimates is enough to fund several large Phase III programs. Meanwhile, the company reported a net loss of $65.6 million ($0.58 per share) in the second quarter of 2025 versus $22.3 million a year earlier - on the back of extensive research activity. The balance sheet remains strong and Viking's current capitalization is about $2.7 billion.

August 19 Morgan Stanley reaffirmed its Overweight rating for Viking shares with a $98 target. This means that the company's securities can grow 4.3 times from the closing price on September 17. Of the 16 analysts who follow Viking shares, only one advises them to "hold," while the rest have assigned a "buy" rating. This optimism is due to the fact that the company has two strong drugs in development. In addition, Viking is testing a maintenance dose regimen, which could be an important competitive advantage in the weight-loss market, where patients are looking to not only lose weight but not gain it back.

This article was AI-translated and verified by a human editor