The trajectories for AbbVie (ABBV -0.76%) and GlaxoSmithKline (GSK -0.11%) stocks have been very different in recent years. While AbbVie generated big gains, GlaxoSmithKline (GSK) languished. The tables have been turned in 2018, though, with GSK outperforming AbbVie so far this year.
Which of these two big pharma stocks is the better pick for long-term investors? Here's how AbbVie and GlaxoSmithKline compare against each other.
The case for AbbVie
Let's start with the biggest reason why not to buy AbbVie stock. The company remains highly dependent on Humira for its revenue. Humira began facing competition in Europe from biosimilars in October 2018, with biosimilars on the way in the U.S. beginning in 2023. Some investors worry about whether AbbVie will be able to replace the billions of dollars in revenue generated by its top-selling drug.
But there are several reasons to be optimistic about AbbVie's chances. For one thing, sales for Humira aren't going to dry up overnight. EvaluatePharma projects that Humira will still rank as the No. 1 best-selling drug in the world at least through 2024.
More important, AbbVie has several newer drugs stepping up to the plate. Cancer drug Imbruvica continues to enjoy strong momentum. Hepatitis C virus (HCV) treatment Mavyret got off to a roaring start in 2017 and 2018. Leukemia drug Venclexta is really picking up steam as well.
It's still early for endometriosis pain drug Orilissa, which gained Food and Drug Administration approval in July. However, AbbVie expects that it will become another blockbuster in the lineup in the not-too-distant future.
The company's pipeline should also deliver some big winners. AbbVie thinks it can obtain FDA approval for two new immunology drugs next year, risankizumab and upadacitinib. Both drugs could be best-in-class successors to Humira.
In the meantime, AbbVie's dividend yields a very attractive 4.82%. The company has increased its dividend payout by 168% since being spun off from parent Abbott Labs in 2013.
The case for GlaxoSmithKline
GlaxoSmithKline doesn't have to wait on its top product to decline. Sales have been falling for a while for the company's respiratory drug Seretide/Advair. GSK also has a basket of older drugs that generate far less revenue than they did in the past.
However, the drugmaker also has plenty of newer products that are driving overall growth. GSK's Ellipta franchise of respiratory drugs is especially performing well, led by Relvar/Breo Ellipta and Anoro Ellipta. The company is also enjoying strong growth for asthma drug Nucala/Mepolizumab.
GlaxoSmithKline has established itself as a formidable player in the HIV market, too. Sales continue to increase for the company's HIV drugs, Tivicay and Triumeq. GSK's first two-drug HIV regimen, Juluca, is picking up some momentum as well, although perhaps not as much as hoped in the face of a strong launch by Gilead Sciences for its new HIV drug, Biktarvy.
The company's biggest new winner is shingles vaccine Shingrix. This new vaccine appears to be on track to become another blockbuster for GSK. Success for Shingrix so far in 2018 led GSK to boost its full-year earnings guidance in the third quarter.
What about the pipeline? GSK plans to build on its existing HIV and respiratory franchises. Two other two-drug HIV combos are in late-stage testing. The company also has a late-stage study underway for cabotegravir as an HIV pre-exposure prophylactic. In addition, GSK hopes to pick up more approved indications for existing drugs with phase 3 studies evaluating Trelegy Ellipta in treating asthma and Nucala in treating rare-disease hypereosinophilic syndrome and nasal polyposis.
Like AbbVie, GlaxoSmithKline offers an attractive dividend, with its yield currently at 5.1%. However, GSK will begin declaring its dividend on a quarter-by-quarter basis next year, which adds to uncertainty about dividend payouts going forward.
Although GlaxoSmithKline appears to be doing quite well right now, I think that AbbVie is the better pick. The company appears to have a good strategy to deliver growth even after Humira's sales begin to decline. Its other products and pipeline candidates give AbbVie a solid foundation to execute on its strategy.
The stock's valuation is also very attractive. AbbVie shares trade at a little over 10 times expected earnings. Its growth prospects over the next few years make the stock a bargain at current share prices. With a great dividend to boot, I think that AbbVie can deliver a market-beating return over the long run.