On Dec. 1, Pfizer (PFE 5.70%) reported some less-than-great news to investors. In short, its latest attempt at developing a drug to compete with Novo Nordisk's blockbuster medicine Ozempic will not be advancing into late-stage clinical trials. Now, the company's bid to capture portions of the extremely lucrative type 2 diabetes and obesity drug markets looks like it's in trouble.
Is this latest difficulty a sign that investors should look elsewhere for growth, or is it merely a patch of bad weather that'll soon abate? Let's break down exactly what happened, and think about why it matters in the larger context.
What went wrong
In its original conception, Pfizer's candidate, danuglipron, was intended to be a pill that people took twice per day to help with weight loss as well as maintaining their appropriate blood glucose level. In technical terms, the drug is a glucagon-like peptide-1 receptor agonist (GLP-1RA).
That's the same mechanism of action used by Novo Nordisk's Ozempic, and it's also one of the mechanisms used by Eli Lilly's medicines Mounjaro and Zepbound. According to analysts at JPMorgan Chase, the market for GLP-1RA therapies could become as large as $71 billion by 2032, so there's a massive incentive to compete.
Unfortunately, Pfizer's attempts to compete haven't worked out. In June, it discontinued work on one of its early- to mid-stage GLP-1RA candidates, lotiglipron, due to patients who experienced higher-than-normal liver enzymes. And as of its announcement on Dec. 1, its danuglipron program, which recently finished phase 2 trials, will not proceed to the next phase either.
Danuglipron appeared to have a few problems that Ozempic doesn't. Patients discontinued the therapy at high rates, perhaps because of the inconvenience of needing to take a pill two times each day. Or they might have found the side effects too burdensome; as many as 73% of the participants treated in the clinical study reported nausea, with nearly half reporting worse gastrointestinal issues.
Investors won't have to wait long to see what's next
Pfizer isn't done with danuglipron just yet. It's performing a pharmacokinetic study with a once-per-day formulation of the drug to see if it's more tolerable for patients. Data from that investigation should be published in the first half of 2024. If the results look better, expect the company to perform a full phase 3 trial for obesity immediately thereafter.
Still, even if it succeeds in eventually commercializing danuglipron, Pfizer will be a latecomer to the GLP-1RA market. Both Novo Nordisk and Eli Lilly have multiple formulations of their products commercialized already. Furthermore, the safety and efficacy of those products are backed by growing bodies of evidence supporting their use. And when it comes to advertising, few would dispute Ozempic's household-name status and brand power, competitive advantages that may prove very difficult to overcome.
That makes it somewhat unlikely for Pfizer to ever realize billions in sales from danuglipron, as its competitors have with their candidates. However, it's important to note that danuglipron is just one program among many in the pipeline. Pfizer has 23 programs in phase 3 trials alone.
Between now and 2030, the company is planning to add roughly $45 billion to its top line via a combination of new drug launches, developing new indications for already-commercialized drugs, and performing deals to acquire promising competitors or pharmaceutical assets. Plus, its plans to acquire Seagen, an oncology company, should supercharge its cancer drug pipeline, and might open up significant growth from pharmaceutical technology development.
To top it all off, Pfizer's price-to-earnings (P/E) ratio is only 16; in comparison to the pharma industry's average P/E of 25, it's priced fairly cheaply. As a result, investors who buy the stock now will have a slightly larger margin of safety than they might normally.
Pfizer's stock is still very much worth buying despite its difficulty with the GLP-1RA market. Whether or not it eventually succeeds, the company is making strides toward further growth, and the price is right.
