The pharmaceutical industry can be a tricky investment.
Remember Pfizer (PFE 1.65%) back in 2020? Its stock price shot from around $33 in February 2020 to nearly $60 by December due to its rapid production/approval of a COVID-19 vaccine. It was the drug stock to own at the time.
Since then, demand for that vaccine has waned, and the stock has been on a downward ride. After plummeting in 2023, the price has moved sideways since early 2024. It now sits at around $28, lower than its pre-COVID price.
Demand for certain types of drugs can clearly be volatile. Plus, all drug companies face patent expirations when competitors can launch cheaper generic versions and steal market share. A drug patent is typically 20 years, but because drug development takes so long (often more than 10 years), much of a patent is used up before the drug comes to market. So, the effective market exclusivity is often just 10 to 12 years.
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Drug companies must continually fill the pipeline
So if you want a pharmaceutical stock for the long term, 10 years or more, you need to look for companies that continue to fill their pipelines, ideally with the next blockbuster drug.
That's exactly what Eli Lilly (LLY 2.22%) has been up to.
NYSE: LLY
Key Data Points
It's already been crowned the winner of the massive GLP-1 drug category, the class of medications that have proven extremely effective in lowering blood sugar levels and promoting weight loss.
And this week, Lilly announced a $2.4 billion acquisition of Orna Therapeutics, which is developing innovative drugs that can manipulate a patient's genes and/or cells to fight diseases -- inside a patient's body, not in a lab.
Just before the Orna announcement, Lilly announced it was paying $350 million upfront to collaborate with a Chinese biotechnology company to develop treatments for immune disorders and cancer. In January, it announced another billion-dollar deal with a German company to develop hearing loss gene therapies.
That kind of foresight is what can keep a drug stock moving higher in the long term.
