What will the world look like in a decade? It's hard to predict that with great accuracy, but for investors it's helpful to focus on the knowledge that the stock market has generally generated solid returns over such periods. It seems highly plausible that the same thing will happen over the next 10 years.
The key to cashing in on that trend is to invest in great companies and hold their shares even through downturns and periods of heightened volatility, such as the one we have experienced over the past year.
With that in mind, let's expand on two stocks that have what it takes to deliver superior returns in the next 10 years: Novo Nordisk (NVO -0.01%) and Merck (MRK -0.52%).
1. Novo Nordisk
Novo Nordisk is based in Denmark and has a knack for developing innovative medicines in diabetes and obesity care, something it has done consistently for the past few decades. Two of the company's key products at the moment are Rybelsus and Ozempic, both of which fall in the category of glucagon-like peptide 1 (GLP-1) agonists. These allow type 2 diabetes patients to control their blood sugar levels by helping them produce more insulin.
The GLP-1 agonists market is competitive, with multiple options available to patients. But Novo Nordisk is currently the undisputed leader thanks partly to Rybelsus and Ozempic, the former of which was first approved in the U.S. in 2019, with the latter first earning the green light in the country in 2017. Novo Nordisk had a 55.7% share of the GLP-1 market as of August, an improvement of 3.6% year over year.
Novo Nordisk's dominance in this area is a good sign for the future. Unfortunately, diabetes is a growing problem. Projections have it that it will only become more prevalent in the decades to come. There will be an even greater need for innovative options for diabetes patients. Novo Nordisk will continue to be a key player in this space, and the company's pipeline demonstrates precisely that.
The company currently has 15 pipeline programs in diabetes or obesity, a third of which are in late-stage studies. One of Novo Nordisk's most exciting candidates is Icodec, an investigational weekly insulin product; patients typically take insulin daily, so this could be a major improvement. Icodec has already demonstrated solid results in clinical trials. Novo Nordisk plans to submit regulatory applications sometime this year.
And there will likely be many more products, too. Novo Nordisk is seeking to expand its lineup and increase diversity. It has more than a dozen non-diabetes or obesity programs, including about half a dozen in phase 3 studies. The company is targeting rare illnesses like sickle cell disease (a blood-related condition) and more common but difficult-to-treat conditions such as Alzheimer's disease.
Novo Nordisk's dominance in diabetes and efforts to innovate elsewhere should result in regular new approvals and improving revenue, profits, and share price.
2. Merck
Pharma giant Merck boasts products in multiple therapeutic areas. The company is best known for its blockbuster drug Keytruda. But although this cancer medicine is Merck's most important asset, the company has other key products within its vaccine business and animal health segment.
Last year, Merck's stock easily outperformed the market thanks to the company's solid financial results. In the third quarter, revenue increased 14% year over year to $15 billion, an impressive result for a pharma giant, especially considering the negative impact of currency rate movements. Merck's sales jumped 18% in constant currency. The company's adjusted earnings per share rose 4% (7% in constant currency) to $1.85.
Keytruda was, once again, the star of the show, accounting for a little over a third of Merck's sales at $5.4 billion, an increase of 20% compared with the year-ago period. Merck's crown jewel is set to lose patent exclusivity in 2028. However, the medicine is still being investigated in plenty of clinical trials. It should continue to earn indications and grow its sales at a good clip until then.
In June 2022, Merck reported that it had reached the milestone of 1 million commercial patients with Keytruda, and the company is on track to double that total by 2024. And a potential subcutaneous formulation of the medicine could help extend its patent exclusivity. Some of Merck's other products should also continue performing well, including its HPV vaccine Gardasil, whose sales the company expects to continue growing at a good clip through 2030.
Elsewhere, Merck is seeking to earn new approvals. One key candidate it is working on is sotatercept, a potential therapy for pulmonary arterial hypertension (PAH). Merck inherited sotatercept through its 2021 acquisition of Acceleron Pharma for $11.5 billion in cash. With a five-year mortality rate of 43%, there is a dire need for new treatment options for patients with PAH.
In October, Merck reported positive results from a phase 3 clinical trial for sotatercept, so a regulatory submission could come soon. And of course, the company has many other programs in its pipeline. Merck's consistent revenue and profits and ability to rack up new approvals make it a solid pharma stock to buy and hold for the next decade.
