AbbVie (ABBV 0.04%) and Biogen (BIIB -1.42%) are two drugmakers that have moved in opposite directions on the stock market of late. While AbbVie has rebounded nicely from the market crash since late March -- with its stock up by 11.7% year to date as of this writing -- shares of Biogen have lost altitude since early April or so, and are down by 10.7% since the beginning of the year.
As we will see below, Biogen has encountered some severe headwinds recently, which explains its poor stock-price performance. There's a chance that the company could recover from its recent woes, but could it actually outperform AbbVie moving forward? Let's dig into these companies' businesses and see which of the two stocks is the better pick right now.
Why AbbVie looks like a buy at the moment
Fresh off its acquisition of Allergan -- which cost the company $63 billion and closed in May -- AbbVie has several things going its way. First, the company's blockbuster drug Humira, which treats several autoimmune disorders such as plaque psoriasis, is still generating growing revenue in the U.S. During the first quarter, Humira's U.S. revenue came in at $3.7 billion, representing a 13.7% year-over-year increase. True, Humira continues to lose steam in international markets, but that is precisely why AbbVie decided to acquire Allergan.
The acquisition helped diversify AbbVie's product lineup, most notably thanks to Allergan's Botox, a product line capable of generating well over $1 billion in annual revenue. During the fiscal year 2019, Botox Cosmetics' sales were $991.3 million, a 9.3% year-over-year increase. Meanwhile, Botox Therapeutics' sales came in at $1.7 billion, a rise of 6.1% compared with the year-ago period.
What's more, while Humira is currently losing steam in Europe due to competition from biosimilars, AbbVie believes that it's unlikely that we will see biosimilars for Botox anytime soon. Of course, the company has many other products to rely on as well. For instance, cancer drugs Venclexta and Imbruvica continue to generate growing sales. During the first quarter, the combined revenue of these two products was $1.5 billion, a 59.9% year-over-year increase.
There's also Skyrizi, a treatment for moderate to severe plaque psoriasis that was approved last year, which brought in first-quarter revenue of $266 million.
With that said, though, there's one worry with AbbVie -- namely, that the company's acquisition of Humira raised its debt level significantly. However, the company has pledged to pay this debt as fast as possible with the "robust cash flow" generated by its strong lineup.
Given all these factors, I think AbbVie will continue outperforming the market, and I believe its stock is a buy today.
Will Biogen bounce back?
Biogen's current best-selling product is Tecfidera, which is used to treat multiple sclerosis (MS). During the first quarter, this drug brought in about $1.1 billion in revenue, a 10% increase compared with the year-ago period. Note that Biogen's total revenue for the first quarter was roughly $3.5 billion, which means Tecfidera alone accounted for about 30% of its revenue during the quarter. However, Biogen recently lost a patent lawsuit against Mylan over Tecfidera, which means sales of this MS drug could face generic competition soon. In other words, Biogen's most important cash cow at the moment could see its revenue decline in the coming quarters.
Furthermore, there's a lot of controversy surrounding aducanumab, a potential treatment for Alzheimer's disease (AD) that was regarded by many as Biogen's next blockbuster drug. At this point, whether this product will earn regulatory approval is anyone's guess. Note that Biogen has yet to submit aducanumab to the U.S. Food and Drug Administration (FDA) for review -- when it had initially said it would do so in early 2020. These two issues are the main reasons why Biogen's stock has been under pressure of late, but the biotech giant has a chance to recover. The company currently has a rich pipeline with about a dozen products in phase 3 testing, including another potential AD treatment called BAN2401.
While these products may not pay off within the next year or so, I do expect Biogen to eventually replenish its lineup and go back to its winning ways. While I think the company's stock remains risky at the moment, for those willing to jump on this opportunity to buy its stock for a discount, patience may be rewarded down the line.
Some financial metrics to consider
Biogen is currently the more efficient of these two companies. Biogen's current profit margin of 40.8% is much better than AbbVie's 24.8%. This trend has held constant over the past few years, with Biogen's profit margin consistently beating out that of AbbVie. Turning to their valuations, although Biogen's forward price-to-earnings (P/E) ratio of 8.1 compares favorably to that of AbbVie at 9.5, AbbVie is currently cheaper when taking into consideration forward sales growth.
AbbVie's forward price-to-earnings growth (PEG) ratio is about 0.1, compared with Biogen's 1.6. Biogen's debt-to-asset ratio of 22.8% is also much better than AbbVie's higher 73.5%, indicating that Biogen has a much more reasonable debt level. Lastly, let's not forget about AbbVie's dividend. The company currently offers a yield of 4.5% against the S&P 500 average of 2% -- with a healthy cash payout ratio of 48.3% -- and has raised its dividends by 131.4% over the past five years. Meanwhile, Biogen currently does not offer any dividends.
Which is the better buy?
Even with a lower debt level and a more efficient business, I think Biogen loses to AbbVie in this battle. Biogen's stock will remain volatile in the short run -- that is, until it solves the issues it is currently facing. Once those are in the rearview mirror, it may be worth buying Biogen's stock. By contrast, I expect AbbVie to continue growing its revenue and earnings, paying off its debt, and rewarding shareholders by way of strong and growing dividends from here on out. For that reason, I think AbbVie will perform better on the stock market than Biogen, which makes it the better of these two healthcare stocks to buy right now.