Pharmaceutical giant Merck (MRK 1.73%) has recently made headlines with its oral COVID-19 pill that was just approved in the U.K. Its competitor, Bristol Myers Squibb (BMY 0.03%), is looking to start reaping rewards from a late 2020 purchase of heart medication specialist MyoKardia.
Both are solid pharmaceuticals that can be the bedrock of your portfolio, offering both dividends and the potential for share price appreciation. But if you're considering investing in either Bristol Myers Squibb or Merck, here's how to decide which one is the better buy.
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Don't sleep on this unloved big pharma stock
George Budwell (Bristol Myers Squibb): With its shares trading at less than three times sales over the prior 12-month period, Bristol Myers Squibb is easily one of the cheapest big pharma stocks right now. This blue-chip has fallen out of favor with investors this year for a variety of reasons.
First off, Bristol didn't take part in the COVID vaccine bonanza, which has been a key growth driver for several of its peers this year. Second, it paid a whopping $13.1 billion for the clinical-stage biotech MyoKardia last year to acquire the potential mega-blockbuster heart drug mavacamten. While that medication is on track to possibly hit the market in 2022, this acquisition required a large capital outlay for an experimental product that won't produce meaningful revenue until at least 2023. Last but certainly not least, Bristol Myers will have to contend with patent losses for its top two best-selling medications (Eliquis and Revlimid) in the second half of this decade.
Why should investors consider this cheap pharma stock? Apart from its attractive valuation, Bristol is still growing its dividend, pouring billions into share repurchases, and is on the cusp of several important new drug launches within the next six months. What's more, Bristol has close to $16 billion in cash to use for business development.
The drugmaker, in turn, is likely to pursue a handful of bolt-on acquisitions in the near future. While Bristol doesn't have enough firepower to go big-game hunting at this point, it should be able to add a few highly attractive assets to its experimental pipeline and product portfolio soon.
More than just Keytruda
Patrick Bafuma (Merck): The second-best-selling drug in the world, oncology blockbuster Keytruda, is still in growth mode. Sales of the cancer therapy hit $4.5 billion in the third quarter, a 21% increase versus the same period a year ago, and a 45% increase versus the same period in 2019. With patent protection through 2028, a steady stream of clinical trial wins, and multiple combination trials underway, it's hard to see a way in which Keytruda doesn't continue to print money for Merck.
It's not all oncology, though. Sales of Gardasil, its human papillomavirus vaccine, were $2 billion in the third quarter, up over 50% from 2019 levels, and the company expects continued strong long-term, demand-driven growth for the vaccine.
Merck's animal health segment is benefiting from increased pet adoption and pet spending due to the pandemic, too. The division just generated sales of $1.4 billion for the quarter and has seen steady growth rates in the low teens year over year since 2018. Without any sign of business degradation in either of these two segments, Merck has a nicely rounded product portfolio.
Then there's molnupiravir, the oral antiviral for COVID that just won U.K. approval. The industry giant has entered into supply, and purchase commitments with several governments worldwide, including Australia, New Zealand, South Korea, the U.K., and the U.S. Merck expects to produce 10 million courses of treatment by the end of 2021, with at least 20 million additional courses expected to be produced in 2022. With a global opportunity for about $5 billion to $7 billion in 2022, along with continued growth in its other divisions, there will be plenty of cash to fuel continued research and development, acquisitions, or both.
These two industry titans, which both have just over a 3% yield, should interest healthcare investors looking to reinvest dividends. If you believe COVID isn't going anywhere, Merck's molnupiravir could generate cash for years to come. Likewise, investors who prefer to minimize the risk associated with having an outsize portion of sales come from a single drug (like Keytruda) might want to look more closely at Bristol Myers Squibb and its blockbuster drugs.
