Financial markets are inherently forward-looking, but investors who can achieve excess returns often possess a more far-sighted vision, enabling them to uncover opportunities currently overlooked by the market. This means they dare to invest in companies that are temporarily underperforming yet possess strong potential for a medium-term rebound. Novo Nordisk and Merck in the pharmaceutical sector are excellent examples of this strategy. While they have faced recent challenges, their core competitiveness and future catalysts indicate significant return potential.
Novo Nordisk’s market value has been impacted by intensifying competition in its core areas of diabetes and weight management. However, the company possesses clear short-term and long-term growth catalysts, positioning it for a strong rebound over the next decade.
In the short term, Novo Nordisk has submitted a regulatory application in the US for its oral weight loss drug, Wegovy, which is expected to be approved within the next 12 months. This would be the first oral GLP-1 drug for weight management, a significant milestone. The pill formulation is easier to store, transport, and produce, and also offers a preferable alternative for patients averse to injections. This cheaper, more user-friendly, and painless option is expected to profoundly impact the market and significantly drive the company’s sales growth. Furthermore, Wegovy has also received FDA approval for treating metabolic dysfunction-associated steatohepatitis (MASH), becoming the second drug approved for this condition. Given the significant unmet medical need in this area and the considerable sales already demonstrated by the first approved drug, Rezdiffra, Wegovy is also highly anticipated for this indication.
In the long term, Novo Nordisk boasts a rich and promising mid-to-late-stage R&D pipeline. The most notable is its investigational triple agonist, a drug that mimics the effects of three different gut hormones. There are currently no similar products on the market, and this approach promises significantly enhanced efficacy. The company also has another oral weight loss drug that has entered Phase 3 clinical trials. These solid R&D projects suggest that Novo Nordisk is poised for a series of clinical and regulatory successes over the next five years, leading to outstanding financial performance.
Merck & Co. is currently navigating challenges. Its blockbuster cancer drug, Keytruda, will face a patent cliff in the US in 2028. Simultaneously, sales of its important growth engine, the HPV vaccine Gardasil series, have declined this year due to weak demand in the Chinese market. These factors have cast a shadow over the company’s short-term prospects, and the market has already priced these difficulties into the stock, causing a significant decline over the past 18 months.
However, Merck has a clear strategy to break through this situation. The company anticipates that its HPV vaccine sales will rebound in the second half of 2025 and continue growing in the coming years. To address the patent challenge for Keytruda, Merck successfully gained approval for a subcutaneous formulation. This new formulation offers the same efficacy as the original version but significantly reduces preparation and monitoring time for physicians. It is expected to attract some patients to switch, thereby partially offsetting the impact of biosimilar competition.
Furthermore, the relay of new products is crucial. Merck’s newly launched pulmonary arterial hypertension treatment, Winrevair, features a novel mechanism of action and holds substantial market potential. An even more solid foundation is the company’s pipeline, which includes as many as 80 programs in Phase 2 or Phase 3 clinical trials. This ensures a continuous stream of successful new product launches in the future. Therefore, although the next year or two may still involve transition pains, long-term investors should recognize Merck’s recovery potential, which is expected to deliver strong returns over the next decade.
