Is Gubra the next weight loss winner?

Danish biotech company Gubra has skyrocketed in 2024 and is suddenly on the radar of many retail investors. Since its listing on Nasdaq Copenhagen at a price of 110 kr. in March 2023, the share price has risen by +340%.

Gubra focuses on early-stage drug development with a business built on two pillars:

i) Research and development services for other pharmaceutical companies with drugs in development. They carry out contract research for some of the world's largest pharmaceutical companies. This part of the business has a relatively stable growing and more predictable revenue stream.

ii) The second leg is its own R&D pipeline focused on discovery and early development of peptide-based drugs. With four weight loss drugs in development, it is this part of the business in particular that has caught the interest of many investors. Revenue and earnings in this part of the business are far more volatile as they depend on the successful research and development of individual drugs.

It is the obesity hype that has largely fuelled the wild price performance. Investors are looking for the next weight loss winner after seeing the success of Novo Nordisk (CSE:NOVOb)'s Wegovy and Eli Lilly (NYSE:LLY)'s Zepbound. With a global weight loss market that Goldman Sachs (NYSE:GS) estimates could reach a staggering 900 billion DKK (130 billion USD) by 2030, investors are ready to bet on the next obesity blockbuster despite the high risks.

Gubra has three weight loss drugs in Phase-1 clinical trials and another five in the discovery phase. But there is absolutely no guarantee that drugs in such early stages will reach pharmacy shelves, and it can take many, many years.

With Gubra's partnership model, investors don't necessarily have to wait that many years. Their collaboration with partners means that they receive milestone payments as the development of the drug progresses, while the partner has the right to further develop and commercialise the drug.

Gubra states that the two most progressed weight loss drugs in collaboration with German Boehringer Ingelheim could potentially trigger milestone payments of up to 1.8 billion DKK (270 million USD) each. That's significant for a company with 2023 revenues of 205 million DKK (31 million USD) and a market capitalisation of around 8.5 billion DKK (1.3 billion USD).

Although Gubra's business leg, research and development services for other pharmaceutical companies, provides some stability in earnings, the company's earnings will largely depend on progress in its own R&D portfolio.

This also makes the share price highly sensitive to positive and negative research data. For example, the share price rose by up to 40% in a few days in July following the announcement of the launch of a phase-1 study for a promising weight loss drug.

Some investors might be interested in gaining exposure to the long term weight loss megatrend, seeing through the short-term volatility. However, it is important that retail investors are aware of the risks associated with investing in companies where a big part of their value is tied to the potential of the R&D pipeline.

eToro Nordic Market Analyst, Jakob Westh Christensen