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Better Buy: AbbVie vs. Merck

By Keith Speights – May 24, 2020 at 7:11AM

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

There are plenty of reasons for investors to like big pharma stocks. They're usually resilient during economic downturns. Many of them have solid growth prospects. And nearly all of them pay dividends.

AbbVie (ABBV -1.29%) and Merck (MRK -0.69%) rank as two of the biggest of the big pharmaceutical companies. These two companies face unique challenges and opportunities. But which is the better pick for long-term investors?

Female scientist holding two test tubes

Image source: Getty Images.

The case for AbbVie

What's the best dividend stock in the healthcare sector? There's a pretty strong argument to be made for AbbVie. 

AbbVie's dividend yield of over 5% might cause many investors' mouths to water. It's not just AbbVie's yield that's appealing, though. The company also boasts an outstanding track record of dividend hikes. AbbVie has increased its dividend for 47 consecutive years

Granted, the argument for AbbVie's growth prospects isn't as strong. The big pharma company's top-selling drug, Humira, loses U.S. patent exclusivity in 2023. With Humira generating more than $19 billion in sales last year, it will leave some really big shoes to fill.

The good news is that AbbVie already has a couple of new immunology drugs on the market that could take the baton from Humira. Rinvoq and Skyrizi should both become megablockbusters that go a long way toward offsetting Humira's inevitable sales decline.

AbbVie should also get a boost from its hematology-oncology franchise. Sales continue to soar for blood cancer drugs Imbruvica and Venclexta. 

And thanks to its recent acquisition of Allergan, AbbVie has other rising stars in its product lineup. Botox remains a juggernaut in the cosmetic market as well as in treating therapeutic conditions including chronic migraine. Antipsychotic drug Vraylar should quickly achieve blockbuster sales. Other Allergan products, including antidepressant Viibryd and birth control pill Lo Loestrin, will also help AbbVie wean itself from dependence on Humira and deliver solid, if not spectacular, growth over the next decade.

The case for Merck

Although AbbVie's Humira ranks as the best-selling drug in the world right now, it will probably lose the top spot to Merck's cancer immunotherapy Keytruda in the not-too-distant future. Sales for Keytruda are on pace to top $15 billion this year. 

More sales growth seems likely. Merck recently reported positive results from two late-stage clinical studies featuring Keytruda, one in combination with chemotherapy as a first-line treatment for triple-negative breast cancer and the other in treating relapsed or refractory classical Hodgkin lymphoma. The drugmaker is also evaluating Keytruda in late-stage studies targeting several other types of cancer. 

While Keytruda is the main growth driver for Merck, its vaccines business continues to perform really well. The company's Gardasil HPV vaccine and its Pneumovax 23 pneumococcal vaccine are the anchors of Merck's vaccine unit.  Market researcher EvaluatePharma ranks Merck's late-stage pneumoconjugate vaccine candidate V114 among the five top vaccines in development.

Merck and its partner AstraZeneca recently received great news with the FDA approval of Lynparza in treating prostate cancer. Lynparza was already approved as a treatment for breast cancer and ovarian cancer. The new indication should significantly boost the drug's sales.

In addition to its prescription drug business, Merck is a major player in animal health. Sales for its animal health unit jumped 18% year over year on the first quarter of 2020. The company's animal health revenue should grow even more with the recent acquisition of U.S. rights to Virbac's Sentinel parasiticides for pets.

Merck stacks up pretty well in the dividend department too. Its dividend currently yields nearly 3.2%. The company has increased its dividend payout by almost 30% over the last three years. 

Better buy

While I like the prospects for Keytruda, I think that AbbVie is a better stock to buy right now than Merck. My view is that AbbVie's dividend is too good to ignore. The company's acquisition of Allergan puts it in an even stronger position to weather the storm when Humira loses U.S. patent exclusivity. AbbVie won't deliver sizzling growth, but I think that it will generate market-beating total returns thanks to its attractive dividend. 

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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Stocks Mentioned

AbbVie Inc. Stock Quote
AbbVie Inc.
ABBV
$141.21 (-1.29%) $-1.85
Merck & Co., Inc. Stock Quote
Merck & Co., Inc.
MRK
$86.18 (-0.69%) $0.60
AstraZeneca PLC Stock Quote
AstraZeneca PLC
AZN
$53.02 (-2.86%) $-1.56

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