The anti-obesity drug market has the potential to be massive, with multiple analysts projecting it may reach at least $100 billion by 2030. As a result, many top healthcare companies are vying for a piece of the market, as doing so could generate significant revenue and profit growth.
Pfizer (NYSE: PFE) has been one of those companies, with danuglipron being a treatment it was hopeful could eventually come to market as a once-daily pill. Unfortunately, those hopes recently came to an end.
Why Pfizer pulled its weight loss pill
Last week, Pfizer announced that it would no longer develop danuglipron, a daily GLP-1 weight-loss drug which investors were excited about as a potential blockbuster for the company. This wasn't due to a lack of effectiveness, but because a patient in the trial appeared to have elevated liver enzymes -- a sign of possible damage to cells.
GLP-1 drugs that help with weight loss typically need to be taken on an ongoing basis, which is why, for a drug to be successful, it needs to be well tolerated and have minimal side effects. Pfizer obviously didn't see a path forward for danuglipron, or a point to continuing costly development, given the side effects it was seeing.
The company was already having problems with danuglipron, abandoning a twice-daily version of the pill in late 2023, but that was due to issues related to tolerability.
Pfizer has over 110 clinical trials ongoing in its pipeline, but the only other one besides danuglipron, which is for chronic weight management, is PF-07976016 -- currently in phase 2 development. Given how lucrative the GLP-1 obesity market may be, the lack of other assets in this space has me wondering if another alternative may be suitable for Pfizer.
Could Pfizer acquire a GLP-1 weight loss drug?
Pfizer has been no stranger to acquisitions in recent years as a way to bolster its growth prospects. Its $43 billion acquisition of oncology company Seagen in 2023 showed it wasn't shying away from making a big move when necessary.
Today, however, with many stocks crashing, it wouldn't cost Pfizer nearly as much to acquire a company that's developing a promising GLP-1 drug. At the cost of just a couple billion dollars (or even much less), Pfizer could make another key move to enhance its portfolio.
Last year, Pfizer generated more than $9.8 billion in free cash flow, and it finished 2024 with $20.5 billion in cash and short-term investments. With strong financials, the company may be in a good position to pursue another acquisition, and now may be an opportune time. Although there's no guarantee or indication that Pfizer will go that route, you might want to pay close attention to any developments -- this may be a much stronger possibility in light of danuglipron's failure.
Should you take a chance on Pfizer stock?
Entering trading this week, Pfizer's stock had declined 17% since the start of January. The stock hasn't been this cheap for years, and its yield is now up to 7.8% -- a jaw-dropping number when you consider the average stock in the S&P 500 yields just 1.5%.
Pfizer stock currently trades at 16 times its trailing earnings, which is an attractive multiple for a top healthcare company that's pursuing acquisitions and long-term growth opportunities. While this latest setback involving danuglipron is disappointing, it doesn't mean the business is in trouble, or that it won't be a big player in the GLP-1 obesity market at some point in the future.
You'd need to be patient, but if you're willing to hang on to Pfizer's stock for years, the payoff could be significant. There's some risk, but this is still a top healthcare company with a robust business. It's been a bumpy ride in recent years -- but don't count out Pfizer in the long run.
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David Jagielski has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Pfizer. The Motley Fool has a disclosure policy.
