While there are hundreds of publicly traded biotech and pharma companies for investors to choose from, they all fall into two general categories. One group is the pharma giants that are big and stable but tend to offer limited growth potential. The other group is comprised of the up-and-coming biopharmas that promise massive upside if things work out, but tend to be highly speculative.
In today's matchup, we'll pit companies from both ends of this spectrum against each other. In one corner is Acadia Pharmaceuticals (ACAD 3.98%), a one-drug company that it is currently in hyper-growth mode. In the other corner is Eli Lilly (NYSE: LLY), a big pharma company that was founded almost 150 years ago. Which is the better bet for new money today?
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The case for Acadia Pharmaceuticals
Once upon a time, Acadia Pharmaceuticals was as red-hot as biotech stocks can be. The company's share price jumped from the mid-single-digits to more than $45 per share between 2013 and 2015 over soaring enthusiasm for its lead compound called pimavanserin (which is now known as Nuplazid).
Expectations were running high when Nuplazid officially won FDA approval in April of 2016. Nuplazid was the first and only drug approved to treat hallucinations and delusions associated with Parkinson's disease psychosis (PDP). About 40% of the 1 million patients with Parkinson's disease in the U.S. suffer from PDP, so the patient population is very large. What's more, Acadia priced Nuplazid at $24,000 per year, so it's understandable why Wall Street expected the drug to eventually reach blockbuster status.
However, while Nuplazid got off to a fast start right out of the gate -- sales blew past expectations in the first three quarters after launch -- results came in a bit shy of what Wall Street had wanted to see in the final quarter of 2017. Furthermore, Acadia reported mixed results from a phase 2 study that was testing Nuplazid as a hopeful treatment for Alzheimer's disease psychosis. Add in the fact that the company set fire to $289 million in 2017 as it launched Nuplazid and its sky-high valuation, and it's understandable why shareholders have had to endure a painful downward roller-coaster over the last couple of years.
Fast-forward to today, and Acadia is now trading for about 11 times current-year expected sales. That number falls to about 7 if you use next year's projected numbers. While that's still certainly not cheap, it might not be that outrageous either given that Nuplazid is still posting triple-digit revenue growth and still holds blockbuster potential. Acadia is also set to report data from a several phases 2 trials over the next 18 months that are studying Nuplaizd as a treatment for major depressive disorder and schizophrenia. Good news from any of those trials could easily translate into a soaring share price.
The case for Eli Lilly
Eil Lilly has been in turnaround mode for a few years now, but the company's efforts look to be finally paying off. Lilly struggled in the early 2010s as it dealt with patent protection losses on several key drugs including Zyprexa, Cymbalta, and Evista. A handful of other top sellers could start facing generic competition in the short term, too.
Thankfully, Lilly is having success with a few recent launches that should help to offset the gap. Recent winners include diabetes treatment Trulicity, psoriasis drug Taltz, and soft tissue sarcoma drug Latruvo. These drugs helped Lilly post an overall revenue growth rate of 8% in 2017, which is pretty good when considering the company's size.
Lilly also boasts a robust pipeline that should help it keep its growth rate up over the next few years. The company boasts 18 programs in late-stage clinical trials or already under regulatory review, some of which promise billion dollar sales potential.
Another potential catalyst for Lilly's investors to look forward to is the possible sale of its Elanco animal health division. Quick math shows us that a sale could bring in more than $10 billion, which Eli Lilly could use to reinvest in R&D, make an acquisition, pay down debt, or reward shareholders. That would also represent a tidy profit from the $5.4 billion it spent to acquire the division from Novartis a few years ago.
In total, Wall Street expects Eli Lilly to post earnings growth in excess of 11% annually over the next five years. That's quite high when considering Eli Lilly's age and size. Shares also offer up a dividend yield of 2.9%, and the payments consume less than half of full-year profit estimates, so it looks quite secure.
Double-digit profit growth and a market-beating yield are an attractive combination, especially when considering that shares trade for less than 15 times next year's earnings estimates.
The better buy
If forced to choose, I'd have to give the edge to Eli Lilly, because I generally favor investing in companies that are cranking out profits as opposed to those that are consuming capital. However, which company you choose for yourself speaks more about what kind of investment you're looking for. If you want the potential to earn multibagger returns -- and have an iron stomach for risk -- then Acadia is clearly the better bet. If you are after income and slow but steady growth, then Eli Lilly is likely to be the superior choice.
