Pharmaceutical giants Pfizer (PFE -0.47%) and Novo Nordisk (NVO 1.00%) have lagged the market over the past year, although Pfizer's poor performance dates back much further. Though these companies have encountered challenges, there are good reasons to be bullish on their long-term prospects.
Pfizer could become an even bigger player in the oncology market (the largest therapeutic area in the industry by sales) over the next decade, while Novo Nordisk will be a major player in diabetes and the fast-growing weight management space. Both could produce excellent results along the way. Here's the rundown.
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1. Pfizer
Pfizer's financial results haven't been great in recent years. To make matters worse, the company will face important patent cliffs by the end of the decade. One of them will be for Eliquis, an anticoagulant that is still one of its best-selling medicines. However, Pfizer has prepared for that eventuality.
The company made several acquisitions and licensing deals that significantly boosted its pipeline, especially in oncology. Pfizer spent $43 billion to acquire Seagen, a smaller cancer specialist whose lineup and pipeline were impressive for a company of its size. With the financial and strategic backing of the larger company, it should yield even more key approvals in the field in the coming years.
Pfizer also recently made an up-front payment of $1.25 billion to China-based 3SBio for the rights to SSGJ-707, an investigational bispecific antibody, a portion of the oncology market that's gaining traction these days. 3SBio will be eligible for commercial and regulatory milestone payments of up to $4.8 billion, not including royalties.
These moves should eventually pay off for Pfizer and strengthen its position in oncology. The drugmaker plans to have eight blockbuster cancer medicines on the market by 2030, up from its current five, while doubling its reach from the current 1 million patients it serves. Of course, Pfizer isn't just a cancer play. The company's extensive pipeline should enable it to launch products in other areas and ultimately get back on track.
While its shares have been lagging the market significantly, that could change in the next decade as financial results rebound thanks to its innovative efforts. Pfizer's shares look especially attractive when considering its valuation. Its forward price-to-earnings (P/E) ratio is 8.7, much lower than the healthcare sector's 15.8. From their current levels, Pfizer's shares could go on to generate excellent returns through 2035.
2. Novo Nordisk
Novo Nordisk pioneered the market for weight management medicines. However, Eli Lilly seems to have taken the lead in that field, at least for now. Novo Nordisk has faced some clinical setbacks, leading to a poor performance over the trailing-12-month period. Can the company rebound and perform well in the next decade? In my view, it can, and the market may be significantly undervaluing its potential.
Its sales of Wegovy, one of the top-selling anti-obesity medications, continue to grow rapidly. Novo Nordisk recently requested approval from the U.S. Food and Drug Administration for oral semaglutide (the active ingredient in Wegovy). That's good for patients who want a non-injected option, and helps counter Lilly's up-and-coming oral GLP-1 medicine, orforglipron.
Elsewhere, Novo Nordisk recently started phase 3 studies for amycretin, a next-gen weight loss candidate. Amycretin is being investigated in both oral and subcutaneous formulations, and both are currently in late-stage clinical trials.
The company also enhanced its pipeline through licensing deals, including one with United Biotechnology, a subsidiary of the China-based company United Laboratories International Holdings, for UBT251. This potential anti-obesity medicine mimics the actions of three gut hormones: GLP-1, GIP, and glucagon. The transaction cost Novo Nordisk an up-front payment of $200 million and up to $1.8 billion in milestone payments.
Thanks to all these developments, Novo Nordisk should remain a leader in weight management in the next decade. Even though competition is mounting, no drugmaker not named Eli Lilly has a lineup or a pipeline as deep as Novo Nordisk's. Furthermore, the Denmark-based pharmaceutical leader will also continue to dominate the diabetes market, as it has done for decades.
Novo Nordisk generates consistent revenue and earnings that typically grow faster than those of similarly-sized peers. Yet the stock's forward P/E is 16.7, which is slightly above the industry average. In my view, that's a bargain for a company that generates better-than-average results and has a deep pipeline in a fast-growing area -- not to mention two of the world's top 20 best-selling drugs, in Wegovy and Ozempic.
For investors willing to stay the course, Novo Nordisk's future still looks incredibly bright.
