Both AbbVie (NYSE:ABBV) and Eli Lilly (NYSE:LLY) have experienced recent clinical setbacks. But while AbbVie's phase 2 study of veliparib was disappointing, it didn't impact the stock too much. Lilly's shares, on the other hand, plunged on the failure of experimental Alzheimer's disease drug solanezumab in a late-stage study. Which of these two drugmakers is now the better pick for investors in light of the recent news? Here's how AbbVie and Lilly stack up.
The case for AbbVie
The argument for AbbVie basically comes down to two things: growth and dividends. AbbVie's growth continues to be driven primarily by blockbuster drug Humira. Total revenue in the first nine months of 2016 jumped 14.5% year over year. Humira accounted for over three-fifths of that growth all by itself, with sales of nearly $11.8 billion during the period.
However, Imbruvica is coming on strong. Sales for the cancer drug more than tripled in the first nine months of the year compared to the prior-year period. AbbVie also saw solid growth from its hepatitis C treatment, Viekira, although sales declined in the third quarter.
What about future growth? AbbVie can count on Humira for at least a few more years. Even though the U.S. Food and Drug Administration (FDA) approved a biosimilar to Humira, AbbVie is using legal channels to keep competition at bay. Imbruvica also has plenty of room to run to get to AbbVie's peak annual sales target of $7 billion.
AbbVie also hopes to generate growth from its pipeline, which includes 15 late-stage clinical studies. Elagolix is one of the company's brightest prospects. The experimental drug is in two phase 3 studies, one targeting endometriosis and the other uterine fibroids. AbbVie expects to submit the drug for regulatory approval in 2017.
As for the dividend, you won't find too many drug stocks that top AbbVie's yield of 4.31%. That yield was helped by the company's board approving a nice increase in October. With Humira still firing on all cylinders, AbbVie shouldn't have any problems keeping the dividends flowing.
The case for Eli Lilly
It would have been much easier to make a strong case for Lilly had things gone better for solanezumab. However, the big drugmaker still has plenty of positives for investors to consider.
Lilly's revenue in the first nine months of 2016 grew 6% compared to the prior-year period. While that's not exactly awe-inspiring, it's not too bad considering that two of the company's top three best-selling drugs, Humalog and Alimta, experienced sales declines during the period. Those headwinds were overcome by strong growth from other products, particularly diabetes drug Trulicity and cancer treatments Cyramza and Erbitux.
Pipeline candidates are critical to Lilly's fortunes. The company is waiting on a regulatory decision for rheumatoid arthritis drug baracitinib. Phase 3 results of baracitinib showed that it outperformed Humira in a head-to-head matchup.
Lilly's pipeline includes 16 late-stage programs excluding those involving solanezumab. The company has partnered with AstraZeneca on another potential Alzheimer's disease drug, BACE inhibitor AZD 3293. Four of Lilly's phase 3 studies are for possible additional cancer indications for Cyramza.
Investors have historically enjoyed Lilly's strong dividends. Lilly's dividend yield stands just over 3%. While there's always the possibility of problems in the future, Lilly's cash flow should allow it to continue paying dividends at current levels.
You've probably already figured out which one of these stocks is the better buy. AbbVie is the clear winner.
I wouldn't dismiss potential threats to Humira, but AbbVie should be able to ride on the success of its powerhouse drug for at least three or four more years. Wall Street thinks the company can achieve average annual earnings growth of 15% over the next five years. I'm not sure that AbbVie will hit that target, but it should come close. That kind of solid growth combined with a stellar dividend makes AbbVie a good pick for investors.