In the current pharmaceutical industry competition centered on weight-loss drugs like GLP-1 agonists, Eli Lilly (LLY) has taken a leading position with drugs such as Zepbound and Mounjaro. Revenue from these drugs now accounts for over half of the company’s total revenue. This success highlights both the opportunities and the risks within the industry. Against this backdrop, three long-established pharmaceutical giants—Pfizer (PFE), Bristol Myers Squibb (BMY), and Merck (MRK)—are facing a common challenge: they all failed to seize the initiative in the early wave of novel weight-loss drugs and, as a result, have been largely overlooked in the capital markets.
A more severe challenge comes from the impending “patent cliff.” In the coming years, all three companies will see patent protections expire for important drugs. The end of patent exclusivity typically means generic competition will lead to a significant decline in revenue and profits for the original drugs. This situation has sparked widespread market concern about their profit prospects for the next few years. Stock performance reflects investor pessimism: Pfizer’s stock price has fallen nearly 60% from its 2021 high, Bristol Myers Squibb is down about 40% from its 2023 high, and Merck’s stock has also retreated 20% from its 2024 peak.
However, it would be premature to write off these seasoned industry players. Patent expirations and the ups and downs of drug development are inherent to the pharmaceutical industry, and these companies have successfully navigated similar challenges multiple times throughout their long histories. Industry leadership is often temporary, as evidenced by Novo Nordisk (NVO) taking the lead with Wegovy and Ozempic only to be surpassed later by Eli Lilly. This also shows that new drugs can rapidly become profit pillars. The three companies are actively working to enrich their product pipelines through R&D and acquisitions to offset the impact of patent expirations. For instance, Pfizer’s recent acquisition of Metsera aims to strengthen its position in the weight-loss drug field. In the long run, they are likely to launch blockbuster drugs again through independent development or mergers and acquisitions, thereby continuing their trajectory of survival and growth.
For investors focused on dividends, a careful assessment of the risks is necessary. Pfizer’s high dividend yield of 6.8% is attractive, but its dividend payout ratio has reached 100%, making it the riskiest. Bristol Myers Squibb’s 5% dividend yield corresponds to a payout ratio of around 80%, which remains relatively high. In contrast, Merck’s 3.3% dividend yield appears most solid due to its approximately 40% payout ratio and may be more suitable for conservative dividend investors.
In summary, Pfizer, Bristol Myers Squibb, and Merck, as seasoned survivors in the industry, have a strong track record and a high probability of overcoming current adversities. Although they face dual pressures of lagging innovation and patent expirations in the short term, their long-term resilience should not be underestimated. For investors focused on long-term positioning rather than short-term trends, these three companies, currently receiving less market attention, might present an opportunity to thoroughly examine their intrinsic value.
