Pfizer Abandons Its Leading Weight Loss Candidate. Should You Sell the Stock?

Although it isn't the largest therapeutic area in the pharmaceutical industry, the market for weight loss therapies has caught fire in recent years. The leading medicines in this field include household names such as Wegovy and Zepbound, two drugs whose sales are rapidly growing.

Their success has attracted the attention of other major drugmakers, including Pfizer (NYSE: PFE), which has been looking to dip its toes into this area. Unfortunately, recent developments make Pfizer's prospects in the weight loss market unattractive. Let's dig more into them and discuss what they mean for investors.

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Danuglipron hits a (fatal) roadblock

Pfizer has encountered many setbacks in its quest to launch a medicine that could rival Wegovy and Zepbound. One of its candidates was called lotiglipron, an investigational oral GLP-1 pill it discontinued after phase 1 studies due to its potentially causing liver problems.

The company's leading program, danuglipron, has also encountered its share of issues. A twice-daily version of this therapy performed well in phase 2 clinical trials, at least on efficacy measures. It did, however, cause relatively high rates of side effects, leading to Pfizer abandoning this formulation of the medicine.

More recently, in mid-April, Pfizer decided to scrap the danuglipron project altogether. In a phase 2 study of a once-daily version, the investigational weight loss therapy seems to have caused liver injury in a patient. Considering it wasn't the first time danuglipron (in any version) was associated with liver problems -- even before reaching phase 3 studies -- Pfizer's decision to give up on this program looks like the right move.

But that means it could miss out on the lucrative weight loss market. So what should investors do?

There are other reasons to buy

Most medicines that enter human clinical trials never make it to the market. So it's not surprising to see one of Pfizer's candidates failing after phase 2 studies -- in the grand scheme of things, this happens all the time to drugmakers, so it's not a deal-breaker. Perhaps things would be different if the market had baked danuglipron's success into Pfizer's share price, but that's hardly the case. The company isn't giving up on the weight loss market, either; it will seek to develop other medicines.

Furthermore, Pfizer's prospects in other markets seemed far more exciting. One area where it has historically had a pretty strong presence is oncology. Pfizer improved its standing in this market a little over a year ago when it acquired Seagen, a cancer specialist, for $43 billion. Seagen was already impressive in its own right despite its relatively small size compared to the largest pharmaceutical companies. It had several approved cancer treatments and a deep pipeline of candidates in the field.

With the backing of the larger and cash-rich Pfizer, Seagen could -- and should -- deliver plenty of clinical and regulatory wins in oncology. As Pfizer's CEO, Albert Bourla, said of this acquisition:

We are not buying the golden eggs. We are acquiring the goose that is laying the golden eggs. For us, what is extremely important ... is that we will maintain the Seagen capability to continue innovating ... under Pfizer's umbrellas, Pfizer's family, to do way more if possible than they were able to do it alone.

Meanwhile, Pfizer continues to generate strong financial results. Last year, its revenue increased by 7% year over year to $63.6 billion. The company's adjusted earnings per share soared by 69% year over year to $3.11. Lastly, Pfizer is a strong option for dividend-seeking investors. The stock's forward yield is now a juicy 7.8%, and the company has raised its payouts by a decent 54% in the past decade.

Pfizer may or may not make waves in the weight loss market down the line. But the company's underlying operations remain strong, its pipeline is incredibly deep, it has a solid dividend program, and it's trading at (very) reasonable levels. That makes the stock a buy, despite the recent danuglipron-related setback. At current levels, the company's shares look like a steal.

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Prosper Junior Bakiny 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.