Merck & Co. has made its first significant entry into the obesity treatment landscape, announcing a licensing agreement with Hansoh Pharma for their investigational oral GLP-1 receptor agonist. The deal, valued at $112 million upfront, grants Merck global rights to the drug candidate outside of China, with potential milestone payments reaching up to $1.9 billion.
The experimental drug, designated as HS-10535, works through the same mechanism as the widely successful injectable treatment Wegovy, targeting the GLP-1 receptor. This strategic move positions Merck to compete in the rapidly expanding obesity therapeutics market, where it had previously maintained a notable absence among major U.S. pharmaceutical companies.
Strategic Implications and Market Impact
The announcement has created ripples across the biotech sector, particularly affecting companies previously viewed as potential acquisition targets. Shares of Viking Therapeutics, Terns Pharmaceuticals, and Structure Therapeutics experienced declines following the news, as investors had anticipated potential buyout deals with larger pharmaceutical companies like Merck.
The relatively modest upfront payment for a preclinical asset reflects Merck's measured approach to entering the obesity market, especially when compared to potential acquisitions of U.S.-based biotechs with multibillion-dollar valuations. This deal follows Merck's recent pattern of establishing partnerships with Chinese biotechnology companies, including recent agreements with LaNova Medicines in oncology and Curon Pharmaceutical in immunology.
Development Pipeline and Commercial Potential
While Merck has maintained a strong presence in cardiovascular medicine, the company hasn't introduced a novel metabolic drug since Januvia's approval in 2006. Despite Januvia and its combination product Janumet maintaining blockbuster status, recent sales have declined due to U.S. pricing pressures and overseas generic competition.
The development of HS-10535 as an oral formulation could potentially offer advantages over existing injectable GLP-1 agonists. Hansoh has demonstrated expertise in this therapeutic area, with an injectable dual GLP-1/GIP targeting drug already advancing to Phase 2 clinical trials.
Financial Considerations
Merck will record a $112 million pre-tax charge, equivalent to 4 cents per share, in its fourth quarter 2024 financial results. The deal structure allows Hansoh to retain significant involvement in the Chinese market, with options for co-promotion or sole commercialization rights in the region.
Industry analysts suggest this licensing agreement may not be Merck's only move in the obesity space, with William Blair analyst Andy Hsieh noting that the Hansoh deal doesn't preclude Merck from pursuing additional business development opportunities in this therapeutic area.
