Is Pfizer Stock a Buy After Its $5 Billion GLP-1 Bet?

Key Points

• Pfizer acquired a smaller company for $4.9 billion to improve its prospects in the GLP-1 market.

• The pharmaceutical giant could carve out a small niche for itself in this growing space.

• Pfizer's improving results, robust pipeline, and reasonable valuation make it a buy.

• 10 stocks we like better than Pfizer ›

The GLP-1 market has grabbed considerable attention in the past couple of years, and there's little doubt as to which pharmaceutical companies dominate this space. Eli Lilly is currently the leader, followed closely by Novo Nordisk.

However, other giants in the industry have been attempting to enter the field, and Pfizer (NYSE: PFE) is among them. Although the company has encountered some setbacks in this quest, it hasn't given up, as evidenced by a recent $5 billion investment that will allow it to make another run at the goal.

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Let's figure out what Pfizer is doing, and whether the company's shares are worth investing in.

Pfizer lands another acquisition

In the past few years, Pfizer has made a series of acquisitions to bolster its pipeline. The most important may have been its $43 billion buyout of Seagen, a cancer specialist. The pharmaceutical leader is now taking similar steps to enhance its GLP-1 pipeline. Pfizer recently announced that it would acquire Metsera (NASDAQ: MTSR), a company focused on developing weight management medicines. The transaction will cost Pfizer $4.9 billion in cash.

Image source: Getty Images.

Here's what the company is getting out of this deal: MET-097i, an investigational GLP-1 medicine in phase 2 studies. MET-097i is being tested as both a weekly and a monthly medicine. Metsera's pipeline also features MET-233i, a potential monthly weight loss therapy that mimics the action of the amylin hormone; this drug is in phase 1 clinical trials. Metsera has two other investigational oral GLP-1 therapies that are about to enter the clinic.

Although it's far too early to predict whether these candidates will succeed in clinical trials, it's worth noting that Metsera's products address existing needs in the growing GLP-1 market.

For instance, the current leaders in the field are administered subcutaneously once a week. There would be a demand for both oral GLP-1 therapies and some that could be as effective but with a less frequent dosing schedule, all of which Metsera is working on. With the backing of the larger and more financially stable Pfizer, these candidates could progress even faster.

Looking at the big picture

Can Pfizer eventually challenge the dominance of Eli Lilly and Novo Nordisk in the GLP-1 space? Maybe not, but it doesn't need to do that to find success. The weight loss market is projected to grow significantly in the coming years, potentially reaching $150 billion in sales by 2035, according to some estimates. In 2024, it was worth just $15 billion.

Even carving out a smaller niche than the established leaders in the field could count as a win for Pfizer -- especially since, unlike Eli Lilly and Novo Nordisk, it would not rely exclusively on this single therapeutic area to drive sales growth. Pfizer's lineup features products across various fields, as does the company's pipeline. The acquisition of Metsera will help improve things for the drugmaker, but isn't, by itself, a good reason to buy its shares: Metsera's products could still flunk in clinical trials.

However, looking at Pfizer's entire business, the stock appears attractive for long-term investors. Pfizer's financial results are slowly improving. In the second quarter, revenue increased by 10% year over year to $14.7 billion, and adjusted earnings per share were up 30% to $0.78.

Pfizer has received some new approvals that should eventually meaningfully contribute to its top line, including Abrysvo, a vaccine for the respiratory syncytial virus (RSV) that generated $143 million in sales during the period. Furthermore, the bottom line has improved in recent quarters due to ongoing cost-saving initiatives. Lastly, Pfizer's extensive pipeline, which features over 100 active programs, should eventually yield significant clinical and regulatory successes.

Meanwhile, the stock appears undervalued. Pfizer was recently trading at just 7.7 times forward earnings estimates, which is less than half the 16.5 average for the healthcare industry. The company may have faced some challenges in recent years, but improving financial results, a deep pipeline further bolstered by the Metsera acquisition, a solid dividend program, and a dirt cheap valuation all make Pfizer's stock attractive at current levels.

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