Kailera Therapeutics (KLRA) shares dropped about 9% on Tuesday, even though the company announced positive results from two Phase 3 trials of its oral GLP-1 drug candidate HRS-7535 (also known as KAI-7535) in China. The stock's decline shows that in the world of weight-loss drugs, good efficacy isn't always enough—especially when side effects make headlines.

The trials, called HARBOR-1 (for obesity/overweight) and OUTSTAND-2 (for type 2 diabetes), both hit their primary endpoints. But investors zeroed in on the gastrointestinal side effects reported in the obesity study, particularly high rates of nausea and vomiting. According to Reuters, those numbers were enough to spook the market.

Obesity Trial: Impressive Weight Loss, but at a Cost

In the HARBOR-1 study, patients taking 120 mg and 180 mg doses of HRS-7535 lost an average of 9.5% and 10.9% of their body weight, respectively, at 44 weeks—compared to just 2.5% for placebo. Under a different statistical analysis (the treatment policy estimand), the numbers were 8.0% and 9.8% versus 2.4%.

The trial also showed that a majority of patients achieved meaningful weight loss: 58.6% on the 120 mg dose and 68.2% on the 180 mg dose lost at least 5% of their body weight. Nearly half of patients on the higher dose lost at least 10%, and about a quarter lost 15% or more. An ad hoc analysis at 50 weeks showed even slightly better results, with mean weight loss of 9.5% and 11.1% for the two doses.

But here's the catch: nausea was reported in about 70% of patients receiving the drug, and vomiting in more than 65%. In the placebo group, those numbers were just 16.2% and 4.5%, respectively. That's a stark difference, and it's likely what drove the stock down.

William Blair analyst Andy Hsieh, who rates Kailera shares Outperform, acknowledged the issue. "In our view, reducing the rate of nausea and vomiting to roughly mid-30% and mid-20%, respectively, will yield a competitive profile," he said. In other words, the drug works, but the side effects need to come down for it to compete with other GLP-1 drugs on the market.

Diabetes Study: Non-Inferior to Dapagliflozin

The OUTSTAND-2 trial in type 2 diabetes also met its primary endpoint, showing that HRS-7535 was non-inferior to the SGLT2 inhibitor dapagliflozin across all dose levels. The 90 mg dose even achieved a statistically significant reduction in HbA1c compared to dapagliflozin at 32 weeks.

HbA1c declined by 1.58%, 1.50%, and 1.68% in the 30 mg, 60 mg, and 90 mg groups, respectively, versus a 1.28% reduction for dapagliflozin. Researchers also saw improvements in body weight, blood pressure, lipid profiles, and urinary albumin-to-creatinine ratio.

Safety Profile: Consistent, but Not Perfect

Across both studies, most side effects were mild to moderate and primarily gastrointestinal. Importantly, the company reported no liver safety signal in either trial, and the diabetes study had no Grade 3 hypoglycemic events. That's good news, but the high rates of nausea and vomiting remain a concern.

Hsieh remains optimistic about the drug's potential. "We believe KAI-7535's efficacy has the potential to be competitive in both chronic weight management and type 2 diabetes," he said. He also views Kailera's broad GLP-1 pipeline as largely de-risked, given the clinical and commercial validation from competitor programs. He sees 2026 as a critical year for laying the groundwork of Kailera's strategy.

Kailera is also advancing KAI-7535 in a global Phase 2 trial for obesity or overweight, which started in April 2026, with data expected in 2027.

Stock Price Action

Kailera Therapeutics shares were down 9.06% at $21.19 at the time of publication on Tuesday.