Two of the biggest pharmaceutical companies in the world have been around since the 19th century. Eli Lilly and Company (LLY +2.61%) was founded in 1876, while Pfizer Inc. (PFE +0.35%) began operations even earlier in 1849. Overall, Pfizer stock has been the better investment. That's not the case so far in 2017, though.
Both Lilly's and Pfizer's share prices are up year to date, but Lilly's shareholders have been the happier campers. Does Lilly's better recent track record point to the stock being the better pick for investors right now? Or is Pfizer still the better long-term investment choice? Here are the arguments for each big pharma stock.
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The case for Lilly
Eli Lilly has long been a leader in the endocrinology market. That tradition continues, with the company posting solid year-over-year growth in the first half of 2017 for its endocrinology products, especially diabetes drug Trulicity and osteoporosis drug Forteo.
The drugmaker hasn't been a significant player in immunology in the past, but it's a different story now. Sales for Lilly's plaque psoriasis drug Taltz are increasing rapidly. Taltz is expected to eventually generate annual revenue of more than $1 billion.
Lilly could have another potential megablockbuster in its lineup soon. In July, the U.S. Food and Drug Administration granted priority review to abemaciclib for treating advanced breast cancer. Priority review shortens the approval process from 10 months to six months. The consensus among analysts is that abemaciclib will reach peak annual sales of around $2 billion if approved as expected.
The company's pipeline also includes 19 late-stage programs. Six of those are for new molecules, with 12 for additional indications and one diagnostic agent. An especially promising late-stage candidate is experimental pain drug tanezumab, which Lilly and Pfizer are co-developing.
Lilly and partner Incyte (INCY 0.31%) received bad news earlier this year when the FDA turned down approval of baricitinib in treating rheumatoid arthritis. However, Lilly expects to resubmit for approval before the end of January 2018 with new safety and efficacy data. If approved, the company could have yet another huge winner in its fold.
Lilly's dividend continues to be attractive, with a current yield of 2.65%. The stock trades at 18 times expected earnings, which isn't a valuation that should scare investors away.
The case for Pfizer
Pfizer's current product lineup includes several blockbuster drugs that continue to generate solid sales growth. Topping the list are Eliquis and Ibrance, which is projected to be one of the five biggest cancer drugs in the world by 2022.
The company has also received regulatory approvals over the last several months for drugs that should be big moneymakers. Atopic dermatitis drug Eucrisa gained approval in December 2016. Bavencio won U.S. approval for treating Merkel cell carcinoma and as a second-line treatment for advanced bladder cancer. Pfizer also received a thumbs-up from the FDA for marketing Besponsa for treating acute lymphoblastic leukemia (ALL).
Pfizer awaits several other regulatory approvals, perhaps the most promising of which are related to experimental diabetes drug ertugliflozin. The FDA is scheduled to give its decision on three filings for ertugliflozin by the end of the year -- one as a monotherapy and two as part of combinations with other drugs.
And there's more. Pfizer's pipeline includes 32 late-stage clinical programs. Nine of those are evaluating Bavencio in additional types of cancer. Four are phase 3 trials for biosimilars to current blockbuster drugs sold by rivals.
Pfizer also boasts one of the best dividends in healthcare, with a yield of 3.82%. With shares trading at just over 12 times expected earnings, the stock's valuation appears attractive as well.
Better buy
You've heard several positives for Lilly and Pfizer. There are some negatives, too. Lilly is experiencing sales declines for several products, including insulin analog Humalog and cancer drug Alimta. Pfizer faces headwinds from loss of exclusivity for multiple products and slowing sales for its top-selling product, pneumococcal vaccine Prevnar 13.
Despite the challenges, though, I think that both Lilly and Pfizer should do well over the long run. But which is the better stock to buy right now? My nod goes to Pfizer.
Pfizer has a deeper pipeline than Lilly does. I also think that Pfizer will continue to be aggressive on the merger and acquisition front. While the drugmaker hasn't always made great deals, I expect Pfizer to bolster its growth through more acquisitions, particularly if efforts to reform the U.S. corporate tax structure are successful. Pfizer's strong dividend was a big factor in the decision. I like Lilly, but I like Pfizer even better.
