Better Buy: Eli Lilly vs. Pfizer

Eli Lilly (LLY -1.81%) and Pfizer (PFE -0.19%) are two of several pharma giants in the race to combat COVID-19. Eli Lilly is currently evaluating three potential therapies for the disease in clinical trials, while Pfizer has kicked off a phase 3 study for its lead COVID-19 vaccine candidate. So far this year, Eli Lilly has outperformed Pfizer in the stock market.

While Eli Lilly is up by almost 13% year to date, Pfizer is down by over 3% during the same period. The S&P 500 has recovered its losses and gained 6.2% on the year. Both of these stocks have exciting growth prospects. But which one will outperform the other moving forward? Let's dig into their respective businesses and decide which is the better buy today. 

LLY data by YCharts

The case for Eli Lilly

Eli Lilly's COVID-19 programs include two potential antibody treatments called LY-CoV555 and JS016, and Olumiant, which is already approved for the treatment of rheumatoid arthritis (RA).In collaboration with the National Institutes of Health, the company kicked off a phase 3 clinical trial for LY-CoV555 in long-term care facilities earlier this month to test its effectiveness in preventing infection from the SARS-CoV-2 virus that causes COVID-19. All of the trial's participants will be residents or employees in nursing homes.

The company also started a phase 1 clinical trial for JS016 on June 8. This study is evaluating the safety, tolerability, immunogenicity (the ability to trigger an immune response in the body), and pharmacokinetics (the way the body processes the treatment) of JS016 in healthy volunteers who haven't been diagnosed with COVID-19.

And the pharma giant is evaluating Olumiant as a treatment for hospitalized COVID-19 patients. By inhibiting the activity of certain enzymes, Olumiant is able to control inflammation in patients with RA. Through a similar mechanism, Eli Lilly thinks the drug could help reduce cytokine storms in those with severe cases of COVID-19. A cytokine storm occurs when the body releases too many cytokines (a type of protein) into the blood too quickly, leading to hyperinflammation. Eli Lilly also thinks that Olumiant could prevent host cells from making more copies of the SARS-CoV-2 virus.

Eli Lilly boasts exciting products beyond its coronavirus programs, with Trulicity as probably the most notable of the bunch. During the company's second quarter, which ended June 30, the diabetes drug generated $1.2 billion in sales, representing a 20% year-over-year increase. While Trulicity is by far the company's best-selling product, several of its other drugs are gaining momentum. Sales of Olumiant increased by 42% to $145 million during the second quarter, while cancer drug Verzenio's sales jumped by 56% to $208.6 million.

Image source: Getty Images.

Back in mid-June, Eli Lilly's stock experienced its biggest one-day gains of the year when it announced positive results from a phase 3 study investigating Verzenio as a treatment for early-stage breast cancer. The company will soon seek regulatory approval for the drug for this purpose. Eli Lilly also has more than two dozen ongoing clinical trials, and the company should be able to enrich its lineup over time. Given its rich pipeline and several products with sales growing at a good clip, I expect Eli Lilly's stock to continue to reward investors.

The case for Pfizer 

Pfizer, meanwhile, is partnering with BioNTech (BNTX -0.45%) to develop a COVID-19 vaccine. The two companies recently kicked off a phase 3 clinical trial for their lead candidate, BNT162b2. This study will enroll up to 30,000 participants, with two primary endpoints: the prevention of COVID-19 in those who have not been infected by SARS-CoV-2, and the prevention of COVID-19 in those who have already contracted the virus.

This candidate is considered one of the leaders in the coronavirus vaccine race. Pfizer's goal is to have 100 million doses ready by year's end, pending regulatory approval. The company could benefit immensely from this market opportunity, but it has more than its coronavirus efforts going its way. Pfizer's biopharma business continues to perform well thanks to products such as anticoagulant Eliquis and cancer drug Ibrance. During its second quarter, which ended June 30, sales of Eliquis came in at $1.3 billion, a 17% year-over-year increase. Ibrance's revenue was also $1.3 billion, 7% higher than the prior-year quarter.

Pfizer is in the process of spinning off its slumping generics business, Upjohn, to Mylan (MYL), a transaction that should be complete by the end of the year. This will leave Pfizer able to focus on its more profitable biopharma business. With nearly two dozen ongoing phase 3 studies, the company is looking to add more products to its already strong starting lineup of drugs. Thanks to its COVID-19 program and strengthened biopharma business, Pfizer's stock should bounce back from its 2020 dip. 

Which is the better buy?

While Eli Lilly's performance on the market year to date is better than Pfizer's, the latter has performed better over the most recent months. Since March 23, Pfizer's shares have climbed by 36.5%, while Eli Lilly's stock is up by 25.6%. Also, Pfizer arguably fared better than Eli Lilly during the second quarter. 

Sources: YCharts, Pfizer and Eli Lilly financial Statements.

Pfizer's revenue may have declined by 11% against a drop of only 2% for Eli Lilly, but sales from Pfizer's biopharma segment, which accounted for 83% of its revenue and will soon become its only operational segment, increased by 4%. Meanwhile, Pfizer posted a higher net income and a higher profit margin. Pfizer is currently trading at a trailing P/E of 15 and a forward P/E of 13.5, suggesting that the market has faith in its rebound.

This compares favorably with Eli Lilly's trailing P/E of 24.5 and its forward P/E of 20.1. With a higher revenue, higher net income, higher profit margin, and more attractive valuation, I think Pfizer is the better pharma buy today.