If AbbVie (NYSE:ABBV) and Eli Lilly (NYSE:LLY) stocks were in a horse race in 2017, Lilly would have been ahead for most of the first half of the race. Over the summer, AbbVie would have pulled ahead by a nose. But by September, Lilly would have fallen well behind, with AbbVie kicking dust in its face. As the year draws to a close, AbbVie stock is up more than 55%, while Lilly stock is up close to 17%.
But Dec. 31 isn't the finish line for investors. The race is only warming up. Which of these two big pharma stocks is the better choice over the long run? Here's how AbbVie and Eli Lilly compare.
The case for AbbVie
AbbVie ranked as the best big pharma stock over the past three years using several key metrics, including total shareholder return. The most significant reason has been the continued success for Humira. It's the top-selling drug in the world and generates roughly two-thirds of AbbVie's total revenue. While some expected Humira's sales to begin to weaken, that hasn't happened yet. AbbVie expects sales for Humira to increase from $16 billion in 2016 to around $21 billion by 2020.
Even with sales for Humira growing, though, the drug will become less important for AbbVie over time. Cancer drug Imbruvica is the company's fastest-growing product, with 2017 sales on track to top $2.5 billion. This amount excludes revenue made by Johnson & Johnson, AbbVie's commercialization partner for Imbruvica.
AbbVie should have another blockbuster with Mavyret. The hepatitis C drug won U.S. and European approval earlier this year. Venclexta, which gained FDA approval in 2016 as a second-line treatment for patients with chronic lymphocytic leukemia who have a chromosomal abnormality called 17p deletion, should be another big winner for AbbVie if it's approved for additional indications.
That leads to AbbVie's pipeline. The drugmaker has multiple candidates with the potential to generate significant revenue. Humira could be joined by autoimmune-disease drugs upadacitinib and risankizumab. AbbVie has several promising experimental cancer drugs, notably including Rova-T and veliparib. The company awaits FDA approval for elagolix by the second quarter of 2018 in managing endometriosis. Elagolix is also being evaluated in a late-stage study for treating uterine fibroids.
The combination of Humira, Imbruvica, Mavyret, and other potential drugs on the way gives AbbVie a compelling growth story. However, the company should also be attractive to income investors, with its dividend currently yielding 2.9%.
The case for Eli Lilly
Eli Lilly has its own growth drivers. The company has been a longtime leader in the diabetes market. Although Lilly's top-selling insulin injection Humalog is only experiencing slow growth now, sales are soaring for diabetes drug Trulicity. Lilly is also getting help for its endocrinology lineup from osteoporosis drug Forteo.
Another bright spot for Lilly is Taltz. The drug won FDA approval for treating plaque psoriasis in March 2016. Lilly received a green light from the FDA for Taltz as a treatment for psoriatic arthritis earlier this month. Analysts expect the drug to eventually generate annual sales of $1 billion or more.
While sales are falling for Lilly's older cancer drugs Alimta and Erbitux, Cyramza is enjoying solid growth. The drug has received FDA approval for treating four types of cancer. Lilly is evaluating Cyramza in late-stage studies for treating three other cancer indications.
The company faces challenges in other areas. Sales have slipped for Cialis and Effient. Slipping is too mild a description for what's happening to sales for Cymbalta, Strattera, and Zyprexa. All three of these neuroscience drugs face generic competition. Still, though, Lilly's newer products have grown sales enough to offset the declines from these older products.
What about new drugs? Lilly won FDA approval for Verzenio in September for treating breast cancer. The company also awaits regulatory approval for experimental migraine drug galcanezumab. In addition, Lilly's pipeline includes 18 late-stage programs. Another migraine drug, lasmiditan, and pain drug tanezumab stand out as promising new candidates.
Income investors will probably like Lilly's growing dividend. Lilly's board of directors recently approved an 8% dividend increase. The yield currently stands at 2.59%.
There are three main categories investors typically use to pick stocks: growth, income, and valuation. AbbVie has the better growth prospects, in my view, with Humira and Imbruvica continuing to rock along and plenty of promising new drugs on the horizon. AbbVie also wins in the income category with its higher dividend yield.
That leaves only valuation. And AbbVie has an edge there also. Lilly stock trades at more than 18 times expected earnings, while AbbVie's forward earnings multiple is less than 15.
To me, the choice is clear: AbbVie is the better stock between these two. Actually, looking at all factors, I think AbbVie ranks as the best big pharma stock overall. I expect AbbVie to continue to have plenty of horsepower down the stretch.