We’ve seen tons of stories about GLP-1 drugs, and have watched the big sellers of those drugs, Novo Nordisk (NVO) and Eli Lilly (LLY), become by far the largest pharma companies in the world (Lilly, in particular, has touched a $750 billion valuation… closing in on the “Magnificent Seven” tech stocks and breaking into the top ten of the S&P 500). That has caused a stampede into these stocks, and, because every success spawns imitators, and causes investors to go looking for those imitators, we’re seeing a surge of interest in biotech companies who might be “next up” in the GLP-1 race.

This is not an area of expertise for me, but it’s a fascinating story… and since the early days of Stock Gumshoe, back in 2007, it has been obvious that the two major “unmet needs” in the health care system are an effective cure for obesity, and an effective treatment for Alzheimer’s Disease. Who knows, maybe we’re in the golden age when both of those things will happen. That ought to create some fortunes for those who get the drugs right and thereby transform the health care landscape, and maybe that’s already happening with Lilly and Novo Nordisk… though drug development is a fickle business, and biotech and pharmaceutical companies will also set hundreds of millions of dollars on fire in the search for those fortunes.

I’m no expert on biotech, and hate the idea of trying to place a value on products that won’t become financially meaningful until their developer has spent tons of money on clinical trials, with no guarantee of eventual commercial success and, often, a 5-10 year development and approval timeline that is rife with pitfalls… but still, I do get tempted sometimes by these stories. And I’m at least curious about what’s coming down the pike.

Which is a long trip to what I wanted to look for today: Dave Lashmet’s latest obesity drug “tease.”

This came in one of Stansberry’s Digest emails that was forwarded to me, so it’s not necessarily a heavily promoted pitch right now — but I think it probably ties in with the weight loss promo for Lashmet’s newsletter which was running next week, since he now says this stock is his new recommendation this week in the weight loss space. Here’s how the email puts it:

“I recently uncovered a startling opportunity in this same market – an opportunity I sent to subscribers of Stansberry Venture Technology just today. And it has to do with my second strategy…

“Trick No. 2: Find what Big Pharma wants to buy – before they do…

“Flat out, this second strategy has more risk – because it requires you to invest before a drug is FDA-approved. So there’s a chance this opportunity collapses completely. Remember, 94% of drugs in development fail to gain approval.”

That’s too reasonably-worded to be a hard sales pitch, no? Sometimes it’s easier to go through somewhat more reasonable email promos.

Lashmet says that when he picks a drug developer he looks for indications that the drug is safe and effective, of course, that’s what everyone is evaluating in early clinical trials… but he says the other two things he looks for are a big market, so “obesity” obviously qualifies, and the competitive landscape.

Which is what caught my attention, because there are now dozens of GLP-1 drugs in development that seem in some ways to be “copycats” — I don’t know which will end up being the safest or most effective, or even if someday they’ll become so cheap that we’re all taking them, but it does make the assessment of these early-stage drugs more challenging.

Here’s how Lashmet describes the situation:

“Competitive Landscape for Weight-Loss Drugs…

“46 Winter-Switch Drugs. Two Hunger-Switch Drugs. One Small Biotech Controls BOTH Hunger-Switch Drugs.”

He calls the GLP-1 drugs the “Winter-Switch” drugs… with “winter” meaning that they both reduce appetite and raise the resting heart rate, causing you to burn more calories (some kind of “squirrel in winter” metaphor in there, they eat less because the hunger pangs are hibernating, but they still have to consume their stored nuts because the heart rate has gone up).

But it’s the “Hunger-Switch Drugs” that he calls attention to, understandably — after all, if there are only two of them, versus 46 GLP-1 drugs in development, the competition is less of a factor. Here’s how he describes those:

“But there is another “switch” in the body – which literally turns your hunger on or off, not just reduces appetite – that can be controlled and used to address weight loss, too. As an injectable drug, it is already FDA-approved and for sale.

“But what’s exciting is a new once-daily pill in development that hits what I call your “hunger switch.” You don’t have to imagine what this is worth: I’ll tell you, it’s a lot. But only if the drug makes it through trials….

“Big Pharma firms have a choice…

“They can develop a 47th drug to try to hit your “winter switch,” and end up with one in 10 years to try to win market share…

“Or they can buy a developmental drug with no competition. There are risks. But the reward is stratospheric. And if you’re the company with the drug, and Big Pharma wants what you own, you just sell it.”

So what is this “Hunger Switch” company, inquiring minds wanna know?

Well, I think what he’s talking about as the “hunger switch” is probably melanocortin receptor 4, often called the MC4 receptor (or MC4R). This has been talked up a fair amount, even in science sources that a dummy like me can understand, as a “hunger switch”… particularly in stories about three years ago, when the first drug that was approved to directly bind to that receptor was approved. That’s the one approved injectable drug that Lashmet calls a “Hunger Switch” drug, setmelanotide, which is now commercially available as Imcivree.

Sound familiar? Yes, Lashmet was touting the drug’s maker, Rhythm Pharmaceuticals (RYTM), in the leadup to approval — back in 2020 he was calling it “The 20X Weight Loss Drug”. And it has done OK since then — it was quite disappointing for a long time after it got approval in 2021, mostly because the drug is approved for treating obesity only in people who have particular genetic causes for their obesity, starting with some very small numbers of potential patients. Even if some of those numbers might be big, eventually, it requires a lot of testing to find those people and sell them the drug.

Imcivree has clearly never taken off the way that the obviously easier-to-commercialize GLP-1 drugs have. Here’s a visual indicator of that — the purple line is Rhythm Pharmaceuticals, whose setmelanotide started getting approvals in November of 2020 (they’ve been adding more approvals for additional genetic causes of obesity along the way), the orange line is the S&P 500, and the other two are the companies who have GLP-1 drugs approved for weight loss and commercially available right now, Novo Nordisk (green) and Eli Lilly (blue):

But what’s this about a second MC4 receptor drug, in pill form? Lashmet says it’s in Phase 2 trials, but there is no pill form of Imcivree (right now they’re trying to get it approved for more indications, which mostly means more genetic markers of hyperphagia and extreme obesity, and get a less-frequent-injections version approved, but no oral form is in their pipeline).

Which is where their recent acquisition comes in — back in January, Rhythm effectively paid $100 million (in three chunks, including some equity) to LG Chem to buy their oral MC4R agonist, which is currently called LB54640. That drug is in Phase 2 trials for both hypothalamic obesity and PCSK1 obesity, with the primary endpoint being the reduction in BMI after 14 weeks, so there should be some news in the coming months as initial results of the trial are released.

So yes, Rhythm seems to have the only MC4R agonist drugs approved and in development for weight loss. The challenge, as it has been for setmelanotide since we first wrote about it years ago, is that it’s approved for and used in very small populations — this is a drug that targets severe obesity, including pediatric obesity, that is caused by or tied to some genetic markers or other uncommon issues (like damage to the hypothalamus). Many of these indications max out at something like 5,000-10,000 potential patients globally, they’re very rare.

Lashmet initially promoted this (back in 2020) as a drug that would likely move on to be approved for “general obesity,” and perhaps that will happen someday — but it is not a talked-about part of the current plan. They are actively trying to increase the size of their market, doing a lot of genetic testing in obese patients to identify commonalities or other genetic disorders and variants for which the drug might be indicated, and ongoing trials in various different groups with those genetic markers are expected to increase the size of the patient cohort… but the size of the market is a long way from being “everyone who’s overweight”. At least, so far. Dave Lashmet originally teased that, “2 Billion People Need This Drug” … but they’re not all going to get it, at least not anytime soon.

Still, it’s interesting that there’s something other than the GLP-1 drugs still percolating out there, and it is indeed approved, and getting used by people. The current base of people who are approved to use Imcivree today, mostly in the US and EU, numbers something in the 4,000-7,500 range, and there are about 60,000 more people who could join that group of potential prescribees if the current Phase 3 trials have the desired outcome… with many more if their ongoing search is successful, they have testing ongoing in six new “gene families” to find other people who would benefit from this MC4R agonist in earlier-stage trials. Within those groups, it wouldn’t be surprising if slow-release versions are more appealing and better tolerated, and the hope is clearly that Rhythm can now leverage the knowledge they have about these rare patients to build a market for the oral MC4R agonist they just acquired… and maybe, just maybe, beyond that move into some much, much larger potential patient pools.

From what I can tell, the side effects of Imcivree sound pretty similar to the GLP-1s, but that could also change if they attempt to bring this drug to a much larger customer base — most of the clinical trials for setmelanotide, even the Phase 3 trials, tested the drug on only 100 or so patients (sometimes far fewer — one of the pediatric trials had only a dozen patients).

That “start with an orphan drug and expand” idea seems to be part of the strategy here, as is often the case for biotech companies — try the rarest and most extreme version of a disease, in this case these cases of severe obesity that are linked to some genetic markers or a named disease or syndrome, get approval for that, because it’s much, much cheaper to test in these smaller groups and the FDA incentivizes companies to go after “orphan” diseases with no good treatments, and then try to pinch and pull that drug into a larger use base over time, which helps to both expand the user base and create new patents to extend the commercial life of the drug.

Will it work this time? I have no idea. But their drugs are, at least, quite distinct from the GLP-1 drugs, so perhaps a competitive advantage will emerge. The initial wave of commercialization of Imcivree has not been enough to make Rhythm profitable, they still spend 4X more on R&D and their selling, general and administrative costs than they bring in as gross profit from selling the drug, and so far it costs them about 60-70 cents in new SG&A expenses to bring in each dollar of new gross profit, so the patients are still expensive to find and sell and this is not a clear profitability story, though the path might be there if they keep adding a few thousand new potential patients with each clinical trial. They’ve continued to issue new shares each year to help to cover their costs, and that seems likely to continue — but the cash burn is gradually improving, it appears, and they say they have enough cash now to get at least into the second half of 2025.

Will someone want to buy out Rhythm to get access to their MC4R drugs, with the hope of building the next large-scale weight-loss drug? I have no idea. To me, this is too hypothetical to invest in, but I also rarely dabble in biotechs and I may be missing out… which is OK, you have to be willing to let some stories go on without you.

You never know, maybe the newly acquired oral drug LB54640 will show fantastic results in Phase 2 trials later this year, and get rushed into Phase 3, and the side effects will be better, people will be looking for something different from the GLP-1s for whatever reason, and a few years from now people in Hollywood will be demanding that their doctors prescribe these pills off-label so they can lose weight. Stranger things have happened, but without any skill in predicting the odds on this one, I’ll leave it to you to consider on your own.

Think Rhythm will turn this drug, which has been successful in very small patient groups, into something much larger over time, possibly even a competitor to the mainstream weight loss drugs? Have other favorites who are trying to break into the weight loss market that Lilly and Novo built in recent years? Think it’s all a fool’s errand? Let us know with a comment below. Thanks for reading!

Disclosure: I don’t own any of the stocks mentioned above. I will not trade in any covered stock for at least three days after publication, per Stock Gumshoe’s trading rules.