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Canada’s buoyant biotechnology sector has produced another billion-dollar exit, as Danish pharma giant Novo Nordisk A/S NVO-N said it will buy a Montreal startup in the hottest area of the drug business: weight loss.

Novo said Thursday that it would pay up to US$1.075-billion cash for Inversago Pharma Inc., including an undisclosed upfront payment and additional amounts if the acquired company hits development and commercial milestones. An industry source said Novo likely paid more than half upfront based on recent sector deals. The Globe and Mail is not identifying the source as they are not authorized to discuss the matter.

The deal came during a key week for Novo and rival Eli Lilly & Co, leaders in the weight loss space. Both delivered huge gains in their latest financial results driven by their weight loss drugs, while Novo unveiled study results that show its drugs also reduce related cardiovascular conditions such as heart attacks.

The Inversago purchase is the latest in a string of US$1-billion-plus takeovers of Canadian life-science companies. In June, GSK PLC GLAXF bought Laval, Que.-based cough treatment developer Bellus Health Inc. for US$2-billion, while Novartis AG agreed to pay US$3.5-billion for Seattle kidney-disease-drug developer Chinook Therapeutics Inc., which was founded in Vancouver and has operations there. Trillium Therapeutics Inc. and Baylis Medical Co. Inc.’s cardiovascular-device unit sold for 10-figure sums in 2021.

The Inversago deal is a win for Canadian backers including venture capital firms Genesys Capital and AmorChem, and Fonds de solidarité FTQ, one of the few domestic institutional investors in the space. Foreign investors include New Enterprise Associates and Forbion.

Genesys helped Inversago’s founders create the company and license in its molecule, known as INV-202, starting in 2015. Genesys, which invested less than $20-million over Inversago’s three financings, is expected to earn a net return greater than its entire $107-million third fund that made the investment, a rare feat for Canadian venture capital. “This was a company we had high conviction in. We maxed out as much as we could” to back Inversago, Genesys managing director Jamie Stiff said in an interview.

Novo is the leading player in the burgeoning area of weight loss treatment, which targets a market of nearly one billion obese people globally. The company experienced global shortages after diabetes drug Ozempic, approved in 2017 by the U.S. Food and Drug Administration (FDA), proved effective for losing weight. Novo then developed a treatment called Wegovy from the same molecule to specifically target weight loss; it was approved in 2021.

The drugs have become a sensation in popular culture, earning callouts from celebrities and influencers, featured in TikTok videos and mentioned during the Oscars. But the medications have also sparked controversy: While they emphasize the need to treat obesity as a medical condition, some eating-disorder specialists have said the drugs feed into diet culture and weight-shaming through their heavy advertising and social-media presence. Treatments can be financially onerous and are prescribed indefinitely. In Canada, monthly doses of Ozempic and Wegovy cost about $250.

Investors, meanwhile, have reaped the benefits. On Tuesday, Novo, Europe’s second most valuable public company, released results of a 17,600-person study showing Wegovy cut the risk of serious cardiovascular ailments in vulnerable overweight or obese patients by one-fifth. Its shares soared 17 per cent to a record close.

The Danish company also raised its outlook Thursday for the second time this year, as sales of Ozempic and Wegovy - which account for more than half its revenues - continued to surpass its own expectations. Ozempic revenues increased by 43 per cent in the first half, and were nearly double its tally from insulin, Novo’s longtime flagship product. Sales of Wegovy grew by 367 per cent in the first half and would have been higher if Novo didn’t face supply constraints that caused it to lower dose strengths and reduce supply to the US in May.

Eli Lilly LLY-N stock also hit a record high this week after reporting its Mounjaro drug had US$980-million sales in the second quarter, far above analyst expectations. Lilly received FDA approval to treat type 2 diabetes last year and is seeking approval to sell Mounjaro as an obesity drug.

Novo and Lilly share something else in common: They built their fortunes commercializing insulin, discovered in Canada a century ago. This time, Novo is buying a Canadian company whose drug was discovered in the U.S. “We always talk about US groups coming here, taking our intellectual property and commercializing it,” said Mr. Stiff. “We’ve rewritten the narrative.”

Novo’s executive vice-president for development, Martin Holst Lange, said in a release that the Inversago acquisition “will further strengthen our clinical development pipeline in obesity and related disorders.”

Inversago’s drug works differently than the injectable Novo and Lilly treatments, which mimic a hormone that prompts production of insulin, controls blood sugar and suppresses appetites. Inversago’s drug, taken as a tablet, binds to cannabinoid type 1 receptors (CB1) in peripheral tissues isuch as kidneys, liver, pancreas and lungs, activating responses including appetite suppression and increasing metabolism and energy expenditure.

Several pharmaceutical giants pursued CB1-blocking drugs in the 2000s but dropped them after they were found to cause depression and severe anxiety. But researchers continued to seek out therapies that wouldn’t enter the brain and cause such side effects. A researcher with the U.S. National Institutes of Health, designed one such molecule; Inversago’s founders obtained a worldwide license to use it to develop a drug for diabetic kidney disease.

Weight loss “wasn’t a hot space six years ago when we launched” and investors “were not interested in hearing about it,” Inversago CEO François Ravenelle said in an interview. That changed with Ozempic.

Inversago is conducting an efficacy trial involving 240 obese patients with diabetic kidney disease. Results are expected in 2024. The company is conducting a second trial for patients with obesity and metabolic syndrome. A 37-person study released in June showed INV-202 was safe and that people who took it experienced an average 3.3-per-cent weight loss versus a 0.5-per-cent gain for those on a placebo over 28 days.

Mr. Ravenelle said Inversago would likely have raised more in another private financing and gone public if it hadn’t sold. But Geneviève Guertin, vice president, private equity and impact investing for life sciences with the Fonds, said “these kinds of indications are better exploited in the hands of a pharma group” than a small drug developer that “is not equipped to finish the development” and take it to market. “It’s a good thing the molecules of Inversago have found a good home to ensure the product reaches the market.”

Follow Sean Silcoff on Twitter: @SeanSilcoffOpens in a new window

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