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Investing.com -- Morgan Stanley (NYSE:MS) upgraded its rating on Zealand Pharma (NASDAQ:ZEAL) shares to Overweight from Equal Weight, highlighting a “long-term obesity potential” unlocked by the company’s recent partnership with Roche (SIX:ROG).
While acknowledging the current headwinds in the U.S. obesity market, the bank’s analysts stressed that over the long term, the obesity market opportunity of more than $150 billion “remains intact.”
“With best-in-class potential and a strong partnership agreement in place, petrelintide should be well positioned to be a leading amylin therapeutic in the next decade,” analysts led by Laura A. Hindley said, assuming the Zealand-Roche deal gets closed.
Petrelintide is Zealand’s experimental weight-loss treatment, part of a drug class known as long-acting amylin analogs. It mimics the hormone amylin, which is naturally released alongside insulin when nutrients are consumed.
Despite near-term headwinds from competitive products and slower U.S. market growth, Morgan Stanley is bullish on petrelintide’s competitive positioning and long-term market outlook.
The Wall Street firm believes that the recent 25% decline in Zealand’s stock price over the past month offers an attractive entry point for investors, as the company’s prospects have become more positive.
Analysts expect investor debates to now focus on competitive threats to petrelintide, the long-term obesity market outlook, and Zealand Pharma’s catalyst path.
They see limited downside risk from internal readouts and identify potential near-term sources of upside, including high-dose data for dapiglutide expected in the first half of 2025, supportive data from Novo Nordisk ’s (CSE:NOVOb) cagrilintide at the American Diabetes Association meeting on June 20-23, and confirmation of a coformulation with CT388/petrelintide post-deal closure.
On the valuation front, Morgan Stanley analysts point out that the Zealand’s shares have underperformed the EURO STOXX Health Care index by approximately 30 percentage points year-to-date.
They argue that the market reaction to the Roche partnership, which added less than $1 billion in market cap despite $1.65 billion in near-term risk-free upfront payments, appears overly conservative.
Their analysis suggests that the market is currently implying $3-4 billion in global peak sales for petrelintide, which seems low given the partnership with Roche and the drug’s best-in-class potential.
Analysts estimate that the deal could increase their valuation of the stock by approximately DKK 215 per share, based on a net present value (NPV) analysis. This reflects potential upside from the 50:50 profit-sharing agreement with Roche in the U.S. and EU, as well as the substantial upfront payments included in the deal.
“We raise our bull-case scenario to DKK 1250 to reflect this upside. We do not make changes to our base case published estimates with this note, given deal closure in Q2’25,” analysts added.