Pfizer (PFE 2.77%) has been southbound for the past three years. Following its success in the coronavirus market, which made it the first company in the biopharma industry to generate $100 billion in annual sales, revenue and earnings have dipped significantly. Furthermore, the drugmaker will face a major patent cliff in the next few years.
With all that going on, should investors even consider buying Pfizer's shares? The good news is that the company is looking to right the ship, notably by expanding its pipeline through acquisitions. And the latest one is particularly noteworthy. Let's see if this move makes Pfizer's stock a buy.
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A hard-fought battle
Pfizer first announced a deal to acquire a smaller biotech, Metsera (MTSR 0.35%), in September. The pharmaceutical giant has its eyes on Metsera's anti-obesity candidates. The weight-loss market is growing rapidly, and Pfizer has not been able to make a dent in the field, as its internally developed programs have failed. By buying Metsera, it hoped to finally dip its toes in this promising therapeutic area.
However, the proposed merger hit a snag. Novo Nordisk, a leader in weight management, made an (at the time) superior offer to acquire Metsera. What ensued was a battle between two of the largest pharmaceutical companies, with Pfizer contesting the validity of Novo Nordisk's proposal and filing lawsuits against the Denmark-based drugmaker.
Pfizer eventually increased its offer. The company is now set to acquire Metsera in a deal worth up to $10 billion, including potential milestone payments based on clinical and regulatory achievements. The transaction had been worth up to $7.3 billion before Novo Nordisk got involved.
Why it's an important move
The demand for anti-obesity medicines is soaring for two reasons. First, drugmakers are making important breakthroughs in the field. Second, the prevalence of obesity has increased substantially over the past few decades, and the condition is linked with many diseases, including some of the leading causes of death.
While precise estimates vary, analysts generally agree that sales of weight management drugs will balloon through the end of the decade, and likely beyond. One projection puts 2035 sales at $150 billion, up from just $15 billion last year.
NYSE: PFE
Key Data Points
It hasn't been easy for most drugmakers to produce strong mid-stage data for their candidates in this area. In fairness, it never is; most drugs that start human clinical trials never make it to the market. But for Pfizer, here's the best part: Metsera has a highly promising mid-stage anti-obesity asset called MET-097i. In a phase 2 study, this medicine showed a placebo-adjusted mean weight loss of up to 14.1% in just 28 weeks, with only two of 239 patients dropping out due to adverse events.
Tolerability has been a challenge for some weight-loss candidates, and Metsera thinks MET-097i could be a leader in that regard. Moreover, the medicine could be administered once a month, rather than once a week, as with the current anti-obesity leader. With this candidate in its back pocket, and others that will come from the acquisition of Metsera, Pfizer looks likely to carve out a niche in this fast-growing space.
Is Pfizer stock a buy?
This is just one of many candidates in Pfizer's pipeline, although it might be the most promising. Even so, the drugmaker has a particularly deep presence in oncology and is running many phase 2 and phase 3 clinical trials in that area. And it has earned approval for several products in recent years -- such as the alopecia areata medicine Litfulo -- that could gain prominence, especially as they receive label expansions.
Even though the company will face patent cliffs in the next few years, it has built a strong enough pipeline to replace drugs losing patent exclusivity. And over the medium term, Pfizer's revenue should begin to move in the right direction.
The drugmaker has addressed potential threats to margins and earnings through both ongoing cost-cutting initiatives that have boosted the bottom line, and a deal with the White House that granted it a three-year exemption from tariffs. All these developments make the stock a buy, in my view, at least for investors willing to ride out the storm and hold Pfizer's shares through it.
