Better Buy: AbbVie vs. Eli Lilly

AbbVie and Eli Lilly are two rock-solid dividend plays, but only one is a buy right now.

George Budwell
George Budwell
Mar 21, 2019 at 8:00PM
Health Care

AbbVie (NYSE:ABBV) and Eli Lilly (NYSE:LLY) are large-cap biopharmaceutical companies cherished by investors for their top-notch growth and outstanding dividend programs. However, these two elite drugmakers have been trending in opposite directions for the better part of the last 12 months. 

While Lilly's shares have taken flight due to the company's rising sales and streamlined business structure, AbbVie's stock has nosedived in response to the drugmaker's inability to diversify its revenue stream in a significant way. Should investors keep buying into Lilly's yearlong rally or is it a better idea to bet on an AbbVie rebound? Let's take a look at each company to figure out which stock is the better buy right now.

A miniature shopping basket filled with pills sitting on top of a pile of hundred dollar bills.

Image source: Getty Images.

The case for AbbVie

AbbVie is the maker of the world's best-selling drug Humira. In 2018, Humira's sales grew by 8.2% year over year to reach an astounding $19.9 billion for the full year. This single drug accounts for over 60% of AbbVie's annual net revenues, despite the company's various efforts to diversify its revenue stream over the past few years.

Not surprisingly, AbbVie's overreliance on Humira for top-line growth has weighed heavily on its shares this year. The core problem is that Humira's international sales are forecast to dip by as much as 30% this year in response to biosimilar competition. Adding fuel to the fire, AbbVie recently announced a nearly $4.11 billion charge associated with the failure of its cancer medicine Rova-T -- a key product candidate that was supposed to help soften the blow from Humira's decline in the coming decade.

Can AbbVie adapt and overcome? Fortunately, the drugmaker has been planning for this eventuality ever since it became an independent entity in 2013. And its carefully laid plans are starting to bear fruit. For instance, the company's oncology franchise has been taking off lately and its top-tier immunology pipeline is slated to produce two major regulatory approvals later this year. As a result, Wall Street expects AbbVie's top line to return to form as early as 2020.

While Humira's loss of exclusivity in key international territories certainly hurts from a top-line perspective, the company seems more than capable of powering past this major headwind. In the interim, AbbVie offers investors an outstanding dividend yield of 5.31%, which is among the highest within its peer group.

Check out the latest earnings call transcripts for AbbVie and Eli Lilly.

The case for Eli Lilly

Like AbbVie, Lilly has had to find a way to restock the cupboard while its top drugs, like Humalog and Cialis, face downward pressure from pricing controversies and generic competition. Lilly, though, has clearly demonstrated that it's up to the task with a spate of high-value drug approvals since 2014.

In the fourth quarter of 2018, newer drug sales accounted for a healthy 38% of the drugmaker's total revenue for the three-month period. Most importantly, Lilly now has a healthy stable of emerging star products, such as the type 2 diabetes medication Trulicity, the psoriatic arthritis drug Taltz, and the cancer treatment Cyramza.

Eventually, the company's fairly new migraine medicine Emgality should also prove to be a key growth driver. Despite competition from two other similar medications, Emgality is projected to generate peak sales of around $700 million.

The net result is that Lilly's top line is slated to keep churning higher in the years to come -- even though the company continues to battle pricing pressures and the entrance of new generic threats to key products. The only downside with Lilly is the company's mediocre dividend yield of about 2% at current levels. That yield pales in comparison to AbbVie and is markedly lowered than most of its big pharma peers. 


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Verdict

AbbVie and Lilly are arguably both worth owning as growth and income plays. However, Lilly comes across as the better buy at this juncture simply because the market continues to doubt AbbVie's ability to overcome Humira's loss of exclusivity.

Lilly, by contrast, appears to have the market's full confidence due to its broad portfolio of new growth products that are already performing up to expectations. And that means that Lilly's stock will probably keep outperforming AbbVie's for the foreseeable future.