Overlooked Healthcare Stocks with Deteriorated Prices to Invest in Intensely
Every corporation encounters difficulties. At times, these issues deal significant harm to a corporation's financial strategy. Alternatively, the decrease in price might present a fantastic purchase opportunity for long-term investors. These companies that fall under the second category are always available in the market; all it takes is recognizing them.
For investors seeking promising candidates, here are two companies in the healthcare sector: Merck (MRK 0.50%) and Pfizer (PFE 0.81%). Unfortunately, their performance this year has been subpar, but they may bring significant returns to patient investors in the future.
1. Merck
Is Merck's key revenue driver, Keytruda, beginning to crumble? The company's celebrated cancer medication is its primary source of growth and typically accounts for over 40% of its revenue. However, in September, Summit Therapeutics, a clinical-stage biotech, reported that a medication called ivonescimab outperformed Keytruda in a phase 3 study conducted in China on patients with non-small cell lung cancer (NSCLC) with a PD-L1 protein overexpression.
NSCLC is Keytruda's most significant market. This result, though from a Chinese study, suggests that the blockbuster medicine could soon face fierce competition. Investors are justifiably concerned, but there is more to the story. Initially, ivonescimab is only undergoing late-stage studies in the U.S. It may take a couple of years (at least) before the medicine is approved in the country, if it gains approval at all.
In the meantime, Keytruda should continue its growth trajectory. Second, Merck's crown jewel was set to face a patent cliff by 2028 anyway. Even if ivonescimab is approved in the U.S. in two years, by the time it starts taking a significant share away from Keytruda, its patent exclusivity may have expired. True, Merck's objective is to develop a subcutaneous version of Keytruda that will earn many of the same indications and extend its patent life beyond 2028.
So, ivonescimab could still pose a threat. Merck acknowledges this. The company has recently signed a licensing agreement with China-based LaNova Medicines for an investigational therapy called LM-299. Similar to ivonescimab, LM-299 is a bispecific antibody, a newer class of cancer drugs, which could prove more effective than the older checkpoint inhibitors, to which Keytruda belonngs. Merck's licensing agreement with LaNova shows it is not resting on its laurels. It will continue to play a significant role in oncology.
Elsewhere, Merck continues to deliver positive financial results and gain new approvals. In the third quarter, the company's revenue increased by 4% year over year to $16.7 billion. This year, it gained approval for Winrevair, a new therapy for pulmonary arterial hypertension. Merck's pipeline features several dozen programs, and it has the financial means to acquire smaller drugmakers or sign licensing agreements with them, just like it did with LaNova Medicines.
Merck is a solid dividend stock, as well, with a forward yield of 3.2%. Its dividend payments have increased by 71% over the past decade. The stock may have dropped by 12% since 2022 began due to Keytruda-related issues, but it remains a worthwhile investment for long-term investors.
2. Pfizer
Pfizer has struggled to regain investors' trust. Once it ceased generating substantial sales from its coronavirus franchise, its shares plummeted and have yet to recover significantly since. However, Pfizer has made significant progress. It has gained numerous approvals, including RSV vaccine Abrysvo, alopecia areata treatment Litfulo, and hemophilia therapy Hympavzi.
Pfizer remains a leader in the remaining COVID-19 vaccine market. In the third quarter, Pfizer's revenue increased by 31% year over year to $17.7 billion. Excluding the $854 million in sales generated by products from its November 2023 Seagen acquisition, Pfizer's revenue grew by approximately 25% compared to the previous year. Investors may feel that Pfizer is still overly reliant on its COVID-19 products - they were the primary reason for its Q3 performance, but they are somewhat seasonal items.
That's especially true of Pfizer's vaccine, Comirnaty. As a result, perhaps Pfizer can't rely on it to drive such top-line growth each quarter. The good news is that Pfizer's innovation continues. In oncology, the company aims to boost its number of blockbusters to more than eight by 2030 from the five it currently has in this therapeutic area. In weight loss, the hottest field in the industry, Pfizer is developing danuglipron. Pfizer's pipeline features 108 compounds across various studies.
Even a few approvals or label expansions each year would allow the company to significantly upgrade its portfolio and reduce its exposure to the coronavirus market.
Lastly, Pfizer also deserves consideration for its dividend program. The company's forward yield is an attractive 6.77%, while its dividend payments have increased by 50% over the past decade. Pfizer is gradually planning for its future. It may require patience, but the company may deliver substantial returns to investors who buy its shares today and hold them for more than five years.
- Despite the concerns raised by Summit Therapeutics' phase 3 study findings, Merck's Keytruda is expected to continue its growth trajectory due to its patent cliff approaching in 2028 and potential countermeasures, such as the development of a subcutaneous version and the licensing agreement with LaNova Medicines for LM-299. Investors seeking growth opportunities in the healthcare sector may find this as a promising area for investing in Merck's stock.
- Pfizer's shares might have faced a significant drop after ceasing substantial sales from its coronavirus franchise, but the company has been making significant progress in other areas. With numerous product approvals, including RSV vaccine Abrysvo, alopecia areata treatment Litfulo, and hemophilia therapy Hympavzi, Pfizer has managed to regain its position as a leader in the remaining COVID-19 vaccine market. Its forward yield of 6.77% and a dividend increase of 50% over the past decade also make its dividend program an attractive opportunity for long-term investors.
