Over the past five years, Amgen (NASDAQ:AMGN) investors have enjoyed a market-thumping 166.1% gain. During the same period, Pfizer (NYSE:PFE) shares rose just 71.8%, underperforming the broad-market S&P 500 benchmark by double digits.
Look a bit closer, though, and you'll notice that revenue growth at Pfizer has started gaining steam, while Amgen's top line is flattening out:
With this in mind, investors are right to wonder which of the big drugmakers is a better buy right now. Let's weigh the opportunities and challenges facing both companies to see which is better poised to deliver market beating gains going forward.
Arguments for Amgen
Competition for anti-inflammatory drug Enbrel, which accounted for about 26% of total third-quarter sales, threatens to pull Amgen's top line under. Its best-selling product is old enough to vote, and competition for its addressable patient population is increasingly intense. Third-quarter sales of Enbrel were flat compared with the previous-year period at about $1.45 billion and will probably contract in the quarters ahead. During the most recent earnings call, management admitted that lower Enbrel volumes were offset by price increases that it doesn't expect to benefit from next year.
And Enbrel isn't the only Amgen product losing ground. Revenue from its second-largest drug, the bone marrow stimulant Neulasta, also fell in the third quarter compared with the same period last year. Recently launched Neupogen biosimilar Zarxio from Novartis is beginning to pressure Neulasta sales as well.
Before you completely dismiss the big biotech, there are some glimmers of hope from a diverse range of younger products in its lineup. Third-quarter sales of multiple myeloma drug Kyprolis bounded 34% higher than in the previous-year period. Osteoporosis treatment Prolia and calcium-reducing Sensipar both grew 18% year over year.
Further ahead, next-generation cholesterol-lowering therapy Repatha could eventually contribute billions to Amgen's top line, but convincing payers that it's worth about $14,000 per year won't be easy. As a leading biologic drug manufacturer, the company is also well positioned to benefit from a slew of high-priced therapies losing U.S. patent protection. The FDA recently greenlighted Amjevita, a biosimilar that references AbbVie's $14 billion-per-year blockbuster Humira. Exactly when Amgen will be allowed to launch the Humira biosimilar in the U.S. isn't clear, but the odds that Amjevita and other "generic" versions of high-priced biologic drugs will contribute 10 figures to the company's top line in the years ahead look good.
Arguments for Pfizer
Amgen isn't the only company feeling the pinch of biosimilar competition for Enbrel. Pfizer markets the drug outside the U.S. and Canada, and biosimilar competition in the EU has taken a toll. It reported that third-quarter sales fell 17% over the previous year period to just $701 million.
With total revenue of about $13.05 billion for the period, Pfizer won't have nearly as much trouble offsetting Enbrel losses as Amgen. Instead, year-over-year contractions of 7% in legacy-drug sales and a 3% in Prevnar vaccine sales are the heaviest weights pulling down the big pharma's top line. The post-exclusivity legacy segment and Prevnar franchise accounted for 21% and 12%, respectively, of total third-quarter revenue.
Pfizer overcame these losses and recorded year-on-year total revenue growth of 8% for the third quarter and an even more impressive 13% gain during the nine months ended September. A great deal of the lift came from rapid uptake of recently launched breast-cancer therapy Ibrance. First approved by the FDA early last year, the capsules hit the ground running, and third-quarter sales already suggest an annualized run rate of $2.2 billion.
With over 233,000 Americans and at least 464,000 Europeans receiving breast-cancer diagnoses each year, annual Ibrance sales could cross the 11-figure threshold. So far, the lion's share of Ibrance revenue has originated in the U.S., but a widely expected approval from European regulators in the near future could help it reach lofty peak estimates.
Ibrance is just one of eight drugs under review by regulators in the U.S. and EU. Further ahead, a stunning 33 late-stage clinical studies under way should keep Pfizer's global sales force busy for years to come.
In the numbers
Income-seeking investors have a lot to like about both companies. Amgen has raised its dividend at an annual rate of about 29.9% over the past three years. The biotech's forward yield of about 2.8% isn't nearly as tempting as the 3.8% yield Pfizer's shares offer at recent prices.
At recent prices, Amgen stock is trading at just 12.6 times this year's earnings estimates, which is slightly less expensive than the forward P/E ratio of 13.1 Pfizer shares are trading at. Given its better yield, near-term growth potential, and an enormous late-stage pipeline, Pfizer's slightly higher multiple seems well worth it. Both companies deserve attention, but Pfizer is the better buy right now.