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Better Buy: Eli Lilly vs. AbbVie

By Keith Speights – Updated Jun 10, 2019 at 3:01PM

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Which stock wins in a battle between these two big drugmakers?

Eli Lilly (LLY 1.42%) and AbbVie (ABBV 0.24%) are similar-sized major drugmakers. But investors have viewed Lilly much more favorably lately. Its shares have soared 38% over the past 12 months, while AbbVie stock has sunk nearly 23%.

Does this mean that Lilly is the better pick for long-term investors than AbbVie is? Not necessarily. Here's what you need to know about the prospects for each of these big pharma stocks.

Scientist holding test tube in a rack of other test tubes

Image source: Getty Images.

The case for Eli Lilly

There's a lot to like with Eli Lilly's current product lineup. Sales for its psoriasis and psoriatic arthritis drug Taltz are booming, with the company reporting a 72% year-over-year increase in the first quarter. Several of Lilly's diabetes drugs also continue to generate strong growth, especially Basaglar, Jardiance, and Trulicity. Breast cancer drug Verzenio is also performing really well.

Lilly has some weak spots. Generic competition is taking a toll on longtime winner Cialis. Sales are slipping for insulin products Humalog and Humulin. However, the company is still able to deliver overall revenue growth despite these headwinds.

Emgality isn't generating significant revenue for Lilly yet. The drug won FDA approval in September 2018 for preventing migraines. However, Lilly recently picked up another approval for Emgality in preventing episodic cluster headaches. Analysts project that the drug could achieve peak annual sales in the ballpark of $700 million.

Lilly could have an even more successful migraine drug on the way. The company awaits an FDA decision on lasmiditan in preventing migraine. The drug could have blockbuster sales potential if approved.

The big pharma company's pipeline includes 18 late-stage programs. Several of these programs seek to gain additional approvals for existing drugs, including Jardiance and Trulicity. Lilly also has some promising new candidates, notably including immunology drug mirikizumab and pain drug tanezumab.

Wall Street expects Lilly to grow its earnings by an average of nearly 11% annually over the next five years. With the company also paying a dividend that currently yields around 2.2%, Lilly should provide an attractive total return to long-term investors.

The case for AbbVie

One drug currently contributes 57% of AbbVie's total revenue. The bad news for AbbVie is that this drug, Humira, faces competition from biosimilars in Europe. As a result, sales for Humira are beginning to decline.

There's plenty of good news for AbbVie, though. It has several other drugs for which sales are growing at a strong pace. Cancer drug Imbruvica continues to enjoy solid momentum. AbbVie expects that another cancer drug, Venclexta, will be a blockbuster in the future. 

Like Lilly, AbbVie has a relatively new drug that isn't a significant moneymaker yet but could be in the not-too-distant future. Orilissa received FDA approval for managing endometriosis pain last year. The drug could eventually reach peak annual sales of around $2 billion.

Actually, AbbVie has another new drug that will almost certainly be an even bigger winner. The company won FDA approval for Skyrizi earlier this year in treating psoriasis. AbbVie expects peak sales of $2 billion for the drug.

The company has 16 late-stage programs in its pipeline. As was the case for Lilly, several of AbbVie's late-stage candidates target additional indications for existing drugs, including Imbruvica, Orilissa, Skyrizi, and Venclexta.

The big drugmaker's most promising candidate is upadacitinib, which awaits FDA approval in treating rheumatoid arthritis and is being evaluated in late-stage studies for several other immunology indications. AbbVie thinks that upadacitinib could bring in $6.5 billion annually.

You're not going to find many stronger dividends than AbbVie's. Its dividend currently yields nearly 5.6%. AbbVie has increased its dividend payout by 168% over the last six years.

Wall Street analysts project average annual earnings growth for AbbVie of nearly 8% over the next five years. The combination of this solid growth with a stellar dividend makes AbbVie an intriguing alternative for long-term investors.

Better buy

Eli Lilly and AbbVie seem likely to deliver similar total returns over the next few years. But there's one thing we haven't mentioned yet that I think tips the balance in favor of one of these stocks -- valuation.

Lilly's shares trade at nearly 18 times expected earnings. AbbVie's forward earnings multiple is a super-low 8.2. Even factoring in growth prospects for both companies, AbbVie's valuation is much more attractive. In my view, AbbVie is the better choice between these two big pharma stocks. 

Keith Speights owns shares of AbbVie. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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