This year, AbbVie Inc. (ABBV +1.76%) showed us why it's important to stay invested for the long haul. Despite a recent thumping, the stock has delivered a 236% total return to investors who have held on since its inception in 2013. Investors who bought the stock earlier this year, though, have a lot less to smile about. A clinical trial flop and a fresh round of concerns for the company's lead drug knocked the stock down 21% from a peak it reached in February.
Pfizer Inc.'s (PFE +2.70%) diverse line of newer drugs has kept things moving at a pace that pales in comparison with AbbVie's, but a recent earnings report has investors feeling confident the top line will continue climbing over the long haul. Which of these big pharma stocks is in a better position to deliver market-beating gains in the years ahead? Read on to find out.
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The case for Pfizer Inc.
This pharma's aging Viagra brand is getting hammered by generic competition, but four recently launched blockbuster drugs are picking up the slack, and a couple are poised to accelerate. In the second quarter, Pfizer's half of U.S. Xtandi revenue rose 21% from last year. At an annualized run rate of $636 million, it isn't the company's leading contributor, but sales of the prostate cancer drug will get a major boost now that it's approved in the U.S. for treating patients with tumors that haven't spread yet.
Pfizer's rheumatoid arthritis tablet, Xeljanz, recently earned label expansions in the U.S. and EU that will make it a sorely needed new option for the treatment of ulcerative colitis. Sales of the drug soared 38% to a $1.9 billion run rate in the second quarter, and ulcerative colitis patients coming online now could allow the popular pill to continue its climb.
Pfizer also saw revenue from its blood thinner, Eliquis, soar 47% to a $3.6 billion run rate, while its breast cancer tablet, Ibrance, jumped 20% to a $4.1 billion run rate. At the moment Pfizer's awaiting approval decisions regarding four cancer drug applications under priority review at the FDA, which means there's a good chance the company can leverage its oncology relationships much further in the quarters ahead.
Four priority reviews at once would be enough for most pharmas, but not Pfizer. The company sees enough potential for 25 to 30 approvals through 2022, 15 of which could go on to achieve 10-figure sales.
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The case for AbbVie Inc.
This company's rheumatoid arthritis drug, Humira, commands a leading share of the U.S. market despite earning its first approval 16 years ago. The company's cash cow is on pace to generate a stunning $20 billion in sales in 2018, but disagreements over its future are turning AbbVie into a battleground stock.
AbbVie's main patents have expired, but the company's bulls argue that additional patents will keep already approved biosimilar versions of Humira from eating into its market share. While that may be the case, the White House is currently considering a proposal that could put a stop to rebates that AbbVie uses to persuade insurers to keep patients on Humira instead of switching them to competing drugs.
Humira's responsible for around 63% of AbbVie's total revenue. Without a rebate lever, the company could have some big losses to offset sooner than expected. Luckily, the company's share of blood cancer drug Imbruvica soared 36% in the second quarter to an annualized run rate of $3.4 billion, and its new antiviral Mavyret pushed total hepatitis C revenue up to $3.9 billion run rate.
Right now, AbbVie's launching a sorely needed new treatment for endometriosis pain that scored high marks during clinical trials supporting its approval. Orlissa's expected to generate more than $1 billion in annual sales within several years, and it isn't the only blockbuster candidate emerging from AbbVie's pipeline.
The company's experimental rheumatoid arthritis drug, upadacitinib, succeeded in five pivotal trials, and an application to be submitted later this year seems like a slam dunk. In the meantime, AbbVie expects approval decisions regarding a psoriasis drug candidate that regulators in the U.S. and EU are currently reviewing.
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Playing it safe
At the moment, AbbVie stock comes with a juicy 4% yield that looks more attractive than Pfizer, which offers 3.4% at recent prices. Over the past year, AbbVie and Pfizer have used 42% and 53% of free cash flow to make dividend payments, respectively, which means both companies have plenty of room to make big increases in the years ahead.
AbbVie's bigger payout is tempting, but investors could suffer losses if Humira sales get squeezed sooner than expected. Several large pharmas, including Pfizer, have indirectly endorsed a new rebate curbing policy by postponing regular price increases until after the November elections.
Pfizer probably has the most diverse product lineup in the business and it's getting bigger fast. That should allow for many more years of steady growth, which makes it the better buy today.
