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Is Pfizer Stock a Buy Ahead of This Highly Anticipated Weight Loss Readout?

Motley Fool - Sun Nov 26, 2023

Pfizer's (NYSE: PFE) stock performance has been disappointing this year (down 38%). The company has faced multiple challenges, such as declining revenues from COVID-19 products, looming patent cliffs for key drugs like Eliquis later this decade, and strategic uncertainties for some of its more recent acquisitions.

For example, Pfizer bought Global Blood Therapeutics and Arena Pharmaceuticals to expand its portfolio in rare blood and autoimmune diseases, respectively. However, these assets are not without competition, and their long-term potential may be limited by rivals with potentially superior clinical profiles.

A clock with hands that read time to buy.

Image Source: Getty Images.

Still, Pfizer's stock isn't without its merits. The company's shares are presently trading at a near-historic low from a forward-looking price-to-earnings standpoint, and its annualized dividend yield has swelled to a breathtaking 5.37% in 2023.

What's more, Pfizer is nearing a highly anticipated phase 2b trial readout for its orally administered, glucagon-like peptide-1 receptor agonist (GLP-1-RA) danuglipron in obese adults. Results from the trial, along with Pfizer's decision on its future development, are both due out before year's end.

Is this clinical readout a buying opportunity?

Even as a follow-on therapy to first movers like Novo Nordisk's (NYSE: NVO) Wegovy and Eli Lilly's (NYSE: LLY) Zepbound, Pfizer's oral GLP-1-RA could eclipse the $5 billion sales mark, according to some estimates. The core reason is the sheer girth of the global weight loss market. Estimates vary, but most analysts expect the weight loss drug market to surpass the $100 billion mark by 2033.

Novo Nordisk and Eli Lilly are generally expected to capture around 80% of this market by the end of the decade, with the remaining share being divvied up by a handful of late-comers. The leftovers in this case, however, should be substantial, comprising a market that's likely to top $20 billion on the conservative end. More optimistic takes put this figure closer to $40 billion at the mid-decade mark in the 2030s.

So, in theory, a positive readout for danuglipron that leads to the launch of a late-stage trial ought to be a major catalyst for the drugmaker's stock. While this thesis seems logical, there are some complicating factors that could lead to a muted response by the market.

Chief among them is the fact that these forthcoming data will be for the drug's twice-daily dosing regimen. A twice-daily oral tablet probably won't be particularly competitive in the back half of the decade based on the direction the field is moving.

To address this all-important issue, Pfizer is developing a once-daily, modified-release version of danuglipron. However, the company seems to be waiting on additional data before deciding on next steps.

Meanwhile, Lilly is moving forward with its next-generation weight loss therapy retatrutide. If Lilly's triple hormone receptor agonist hits the mark in late-stage testing, Pfizer and other late-comers to the field may have a tough time capturing market share. After all, the clinical data thus far indicate that retatrutide could be a game-changer for not only obesity but other conditions like fatty liver disease that are closely associated with being overweight.

Key takeaway

Pfizer's stock probably won't get a sustained boost from these upcoming mid-stage data due to the rapidly evolving competitive landscape for weight loss medications. That's not to say the big pharma's shares

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George Budwell has positions in Pfizer. The Motley Fool has positions in and recommends Pfizer. The Motley Fool recommends Novo Nordisk. The Motley Fool has a disclosure policy.

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