If you're looking to add a big pharma stock to your portfolio, Eli Lilly (LLY 0.93%) and Pfizer (PFE 1.09%) are naturally two top candidates. Both big drugmakers have been very successful through the years. And both have new drugs and pipeline candidates that could fuel future growth.
But which of these big pharma stocks is the better pick for long-term investors? Here's how Lilly and Pfizer compare in several key areas.
If you ask Wall Street analysts, they'd probably tell you that they expect Lilly to grow at a significantly faster rate than Pfizer over the next five years. Lilly certainly has several products that are delivering strong sales growth. For example, the company reported first-quarter results that included four drugs with year-over-year sales increases of 30% or more: psoriasis/psoriatic arthritis drug Taltz, insulin product Basaglar, and diabetes drugs Jardiance and Trulicity.
Lilly also has a great new migraine drug on the market with Emgality and another one potentially on the way with lasmiditan. The company's late-stage pipeline largely targets additional indications for already-approved drugs including Jardiance, immunology drug Olumiant, diabetes drug Trulicity, and cancer treatment Verzenio. However, Lilly also could launch new products if all goes well, such as nasal glucagon for treating diabetes and kidney cancer drug pegilodecakin.
But Lilly also must overcome declining sales for several of its older products. Sales are dropping significantly for erectile dysfunction drug Cialis and ADHD drug Strattera, in particular. Several other diabetes and neuroscience drugs in Lilly's lineup are also experiencing lesser sales declines.
Probably the biggest reason why Pfizer's growth prospects might look less promising than Lilly's is that the company soon faces the loss of exclusivity for blockbuster nerve pain drug Lyrica. Sales are also sliding for Pfizer's immunology drug Enbrel as it faces biosimilar competition in Europe. In addition, the company's sterile injectables business continues to struggle because of product shortage issues.
However, Pfizer should be in pretty good shape to grow after 2020. The company has several high-growth drugs, including anticoagulant Eliquis, breast cancer drug Ibrance, and immunology drug Xeljanz. Pfizer's pipeline also appears to be its strongest in years.
Comparing the dividends for each of these big pharma companies isn't nearly as subjective. Pfizer's dividend yield currently stands over 3.5%, while Lilly's dividend yields 2.2%.
Pfizer has also beat Lilly when it comes to dividend growth. Over the last five years, Lilly increased its dividend by nearly 32%. But Pfizer boosted its dividend payout during the same period by more than 38%. Pfizer also has a longer track record of annual dividend increases.
Pfizer appears to be more attractively valued than Lilly on a couple of key metrics. While Lilly's shares trade at 17.4 times expected earnings, Pfizer's forward earnings multiple is a much lower 13.7.
Another popular valuation metric is enterprise value-to-EBITDA (EV-to-EBITDA). Pfizer scores better on this metric as well, with an EV-to-EBITDA ratio of 11.7 versus Lilly's ratio of 15.7.
I wouldn't be surprised if Lilly outperforms Pfizer over the next couple of years. Pfizer will feel the pain from the loss of exclusivity for Lyrica in a major way. But over the longer term, I think that Pfizer could be the bigger winner.
The issues that Pfizer's sterile injectables business faces will diminish over the next year or so. Pfizer should also launch several new drugs with blockbuster potential, including tafamadis for treating transthyretin amyloid cardiomyopathy and its Bavencio-Inlyta combo as a first-line treatment for kidney cancer. The company's biosimilars should add even more growth.
Pfizer appears to be a bargain right now for investors willing to wait for growth. In the meantime, the stock pays investors to wait with its strong dividend. My view is that conservative investors should give serious consideration to Pfizer as a component of their long-term portfolio.