One company produces the top-selling pharmaceuticals in the world. The other is a household name that offers various consumer health products as well as pharmaceutical products. Both are dealing with some hurdles and challenges.
We're talking about AbbVie (ABBV -0.38%) and Johnson & Johnson (JNJ 0.91%). Are either of these stocks worth buying right now? If so, which is the better buy? Let's take a closer look at each of these healthcare companies.
AbbVie underperformed the broader market last year, down 3.9% in a year when the S&P 500 returned 28.9%. This year, the stock has outperformed, down 10% compared to the S&P 500, which has lost 24.7% year to date.
The company is coming off a solid fourth quarter with $2.8 billion in net income, a drastic difference from its loss of $1.8 billion in the fourth quarter of 2018. For the full year, net income was $7.9 billion, up from $5.7 billion. Earnings per share were $5.28 in 2019, up from $3.66 in 2018. Quarterly earnings were boosted by solid U.S. sales of AbbVie's top-selling drug, Humira, which treats rheumatoid arthritis.
Humira, the world's top-selling drug, had net revenue of $3.9 billion in the U.S. in the fourth quarter, an increase of 9.8% over the fourth quarter of 2018. Internationally, net revenues were down 27% to $948 million due to biosimilar competition. Overall, Humira had $4.9 billion in quarterly net revenues globally, which is flat compared to the fourth quarter of 2018.
AbbVie also had strong sales from Imbruvica, a cancer drug, which saw global net revenues climb 28.9% to $1.3 billion in the quarter, an increase of 28.9%. Imbruvica is the market leader in treating CLL (chronic lymphocytic leukemia) and the company expects continued growth from it. Net revenues from its hematologic oncology portfolio, which includes Imbruvica and Venclexta, were $1.5 billion, up 37% in the quarter.
New immunology drugs Skyrizi and Rinvoq had net revenues of $216 million and $33 million, respectively. The company expects Skyrizi and Rinvoq to deliver $1.7 billion in revenue this year, up from past projections of $1 billion.
The company has some good momentum but is still waiting to close on its $63 billion acquisition of Allergan. Allergan produces the blockbuster cosmetic drug Botox, which will further diversify AbbVie's revenue stream. The deal was supposed to close in the first quarter but has been postponed due to a delay in the Federal Trade Commission's verdict. The company expects a decision in the second quarter. The good news is that the European Commission signed off on the deal in early March.
Johnson & Johnson
Johnson & Johnson is coming off a better year than AbbVie, at least as far as shareholders are concerned. The stock was up 13% in 2019, which trailed the S&P 500, but was ahead of AbbVie. This year, the stock has suffered more than AbbVie, down about 13% year to date.
They are two very different companies, as AbbVie is solely focused on pharmaceuticals while Johnson & Johnson has a more diversified revenue stream. Its consumer products division manufactures and sells branded skincare products including Neutrogena and Aveeno, pain relievers Tylenol and Motrin, and popular health products including Band-Aid, Listerine, and Johnson's soap and baby powder. Johnson & Johnson also has a medical device division that sells orthopedics, surgery, and vision devices. Its subsidiary Janssen is its pharmaceutical business, producing immunology drugs including Stelara, which treats Crohn's disease, and Remicade which treats an array of autoimmune conditions.
In the fourth quarter, sales were up 1.7% over the previous year's quarter to $20.7 billion, while net income climbed 31.8% to $4 billion. For the full year, sales were up nearly 1% to $82.1 billion while net income was down 1.2% to $15.1 billion. Earnings per share were $5.63 for 2019, up 0.4%. For the full year, the pharmaceutical division saw 5.8% sales growth, while medical device sales were up 3.9% and consumer products sales were up 1.4%. The company's 2020 guidance calls for a 5% to 6% increase in sales and 3.1% to 4.8% increase in adjusted EPS.
Johnson & Johnson has been able to grow despite some major legal issues. In 2018, the company paid out $4.7 billion to plaintiffs in a lawsuit who alleged its baby powder caused them to develop cancer. J&J appealed the decision, saying the product does not cause cancer. Last year, an Oklahoma judge ordered the company to pay $572 million for its role in the state's opioid crisis. The company has appealed.
Last year, the company was ordered to pay out $8 billion in a lawsuit brought by a plaintiff over alleged side effects of its drug Risperdal, an antipsychotic medicine, that caused the patient to develop gynecomastia (swelling of breast tissue in males). J&J appealed the decision and the payout was ultimately reduced to $6.8 million.
In February, the company was ordered to pay $750 million to four plaintiffs over claims related to its baby powder. These legal troubles are not over yet as some 16,800 plaintiffs have filed lawsuits against the company related to its talcum powder products.
Which is the better buy?
AbbVie is the better buy right now. Johnson & Johnson has been able to grow through these lawsuits, but they are not going away and will continue to be a drag on earnings.
AbbVie is undervalued with a forward P/E ratio of around 9, and it has great growth potential from its pending Allergan acquisition, which looks like a go, and its promising new products. Plus, AbbVie pays out an excellent quarterly dividend of $1.18 per share – which has gone up every year for the past seven years. Johnson & Johnson also pays investors a dividend, but it's not enough to entice investors to take on all that risk.