Did Novo Nordisk Just Say "Checkmate" to Pfizer?

Novo Nordisk's (NYSE: NVO) shares have dropped significantly over the past year, partly due to clinical setbacks in its core GLP-1 portfolio. However, the Denmark-based pharmaceutical leader has been trying to turn things around. The company has expanded its pipeline through internal innovation and astute acquisitions.

The latest buyout Novo Nordisk is trying to pull off is putting it in a direct confrontation with another beaten-down pharmaceutical giant: Pfizer (NYSE: PFE). Let's see what's happening between these two, and what it means for investors.

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Trying to eat Pfizer's lunch

On Sept. 22, Pfizer announced it would acquire mid-cap biotech company Metsera (NASDAQ: MTSR) for about $4.9 billion, not including potential milestone payments. Although it has no approved products on the market, Metsera has a few weight-management assets, including a mid-stage candidate, MET-097i. Since this transaction was announced, Metsera has released results from a pair of phase 2 clinical trials for MET-097i.

The medicine showed a competitive weight-loss profile, and potential best-in-class tolerability given the low rates of adverse reactions in the trials. On top of all that, it could be administered once monthly, compared to once a week for the current leaders. In other words, MET-097i's profile looks attractive -- so far, so good.

Here's where it gets interesting: Metsera received an unsolicited acquisition offer from Novo Nordisk. The Danish company is valuing it at about $9 billion (a figure that includes potential clinical and regulatory milestones). Metsera is entertaining Novo Nordisk's offer, so Pfizer could come out of this process empty-handed.

This means more to Pfizer

Pfizer has tried to develop weight-management medicines internally, but has mostly hit dead ends. Furthermore, its financial results haven't been strong in recent years. And with some major patent cliffs on the horizon by the end of the decade, it will need to find a new blockbuster or two to jump-start top-line growth. MET-097i looked like a strong candidate along those lines, but it now seems as though Pfizer won't get its hands on this promising anti-obesity medicine after all.

Novo Nordisk, even with the setbacks it has encountered, continues to grow its revenue and earnings faster than Pfizer and other similarly sized peers. Novo Nordisk also has an attractive pipeline that includes two candidates in advanced trials. CagriSema has already performed well in phase 3 studies and seems destined for stardom. And amycretin is a dual GLP-1 and amylin agonist now in phase 3 studies, in both subcutaneous and oral forms.

MET-097i would be a great addition to Novo Nordisk's portfolio. But even without it, the Danish company already has its next blockbuster drug in CagriSema, while its semaglutide empire continues to drive solid sales growth. Losing MET-097i would affect Pfizer more than Novo Nordisk.

What should investors do?

I believe that Novo Nordisk's shares still look like a great buy at current levels. The pharmaceutical giant is trading at 14 times forward earnings, compared to the healthcare industry's average of 17.1; it's growing its revenue and earnings faster than most of its peers, while boasting a strong pipeline in one of the industry's fastest-growing therapeutic areas. Acquiring Metsera and its weight-loss assets might make Novo Nordisk even more appealing, if the company can pull it off.

Pfizer's forward price-to-earnings (P/E) ratio of 8.7 also looks low given its growth potential. True, revenue growth hasn't been strong, but the company's deep pipeline should eventually yield some gems. It has earned approval in recent years for some medicines that are slowly ramping up sales, and even without MET-097i, it should find more. So, although the company might take longer to recover, Pfizer stock also looks like a buy.

Prosper Junior Bakiny has positions in Novo Nordisk. The Motley Fool has positions in and recommends Pfizer. The Motley Fool recommends Novo Nordisk. The Motley Fool has a disclosure policy.