Pfizer (PFE 1.17%) might be more than twice as big as fellow drugmaker Eli Lilly and Company (LLY 1.91%), but Lilly has been the better investment choice for quite a while. Lilly stock has outperformed Pfizer over the last 10 years, the last five years, the last 12 months, and so far in 2017.
But will Lilly's dominance in the stock market continue -- or is Pfizer now the better buy for long-term investors? Here's how these two big pharma stocks compare.
The case for Pfizer
Pfizer's problems over the last several years have largely been the result of several key drugs losing patent exclusivity. However, the company appears to be finally getting past these issues.
In 2016, Pfizer had eight drugs that achieved double-digit percentage sales growth. The most impressive performance belonged to cancer drug Ibrance, which saw sales soar from $723 million in 2015 to $2.1 billion last year. Analysts think that Ibrance could reach peak annual sales between $3 billion and $5 billion, so there could potentially be plenty of growth ahead.
Two other fast-growing drugs that are key to Pfizer's fortunes are anticoagulant Eliquis and rheumatoid arthritis drug Xeljanz. Eliquis, which is co-marketed by Bristol-Myers Squibb, made nearly $2.2 billion last year, while Xeljanz generated revenue of $927 million.
New drugs gained from acquisitions should also help Pfizer significantly. The company won FDA approval for atopic dermatitis drug Eucrisa in December 2016. Pfizer picked up the drug from its buyout of Anacor last year. Prostate cancer drug Xtandi, which Pfizer added to its lineup as a result of the Medivation acquisition, also has a lot of potential.
Pfizer's pipeline includes a whopping 32 late-stage programs. Nine of those are for studies of cancer drug Bavencio. Pfizer already won FDA approval for the drug in treating Merkel cell carcinoma and awaits regulatory decisions in Europe for this indication and in the U.S. for treatment of second-line urothelial carcinoma.
Wall Street analysts project that the combination of Pfizer's current products and new products on the way should allow the drugmaker to grow earnings by close to 6% over the next five years. That's not extremely high, but it's three times faster than Pfizer's earnings growth in recent years. Pfizer's nice dividend yield of 3.79% adds quite a bit to the total return investors can expect.
The case for Eli Lilly
Lilly's current product lineup includes five blockbuster drugs and four that could reach $1 billion in annual sales in the not-too-distant future. Among the current blockbusters, osteoporosis drug Forteo is demonstrating the most impressive growth, with an 11% jump in sales last year.
The drug with the fastest-growing sales for Lilly, though, is Cyramza. Sales for the cancer drug grew 60% in 2016 and nearly 31% year-over-year in the first quarter of this year. Other up-and-coming drugs include diabetes medication Trulicity and psoriasis drug Taltz.
Lilly and partner Incyte had hoped to win U.S. approval for its rheumatoid arthritis drug Olumiant earlier this year. However, the FDA requested further data on the drug. Still, the two companies did receive approval for Olumiant in Europe and hope to eventually gain U.S. approval. If the drug does win FDA approval, analysts think it could reach peak annual sales of around $2 billion.
There are 19 late-stage programs in Lilly's pipeline (including one diagnostic agent). Four of Lilly's late-stage programs are for additional indications for Cyramza. If the drug ultimately wins approval in all targeted cancer indications, it could reach peak annual sales of around $700 million.
One of the most promising new candidates is experimental migraine drug lasmiditan, which Lilly picked up with its acquisition of Colucid earlier this year. Lilly also hopes to achieve big success with pain drug tanezumab, on which the company is collaborating with Pfizer.
Wall Street analysts project that Lilly will be able to grow its annual earnings by nearly 13% over the next five years. In addition, the drugmaker pays a dividend with a current yield of 2.5%.
At first glance, Lilly looks like the better pick. Its earnings growth estimates are more than double estimates for Pfizer. However, in my view, Pfizer gets the nod between these two stocks. Why?
For one thing, I'm not sold on Lilly's pipeline prospects. That's especially the case for its two experimental Alzheimer's disease drugs. I also think that Olumiant won't have an easy time competing in an already-crowded rheumatoid arthritis market -- and that's assuming it does win U.S. approval eventually.
I like Pfizer's pipeline better. On top of that, the company's essential health business segment could actually be a growth engine in a few years. Investors should be able to count on Pfizer's attractive dividend yield while the big drugmaker returns to solid growth.