Pharmaceutical companies Novo Nordisk (NVO -1.51%) and AbbVie (ABBV -1.13%) seem to be headed in separate directions.
Denmark-based Novo Nordisk, thanks to growing sales of diabetes drug Ozempic and obesity therapy Wegovy, is predicting sales to grow between 24% to 30% and operating profit to rise 28% to 34% this year.
AbbVie, on the other hand, thanks to the loss of patent protection for immunology blockbuster Humira, has forecasted 2023 adjusted earnings per share (EPS) to drop by 20% to 23%, from 2022 levels. Both stocks rewarded investors over the past decade, but for the long term, which is a better buy right now? Let's find out.
Novo Nordisk's earnings growth is just beginning
Novo Nordisk's shares are up nearly 18% so far this year. The Danish pharmaceutical company reported 176.9 billion Danish kroners (roughly $25.4 billion) in revenue in 2022, up 25.7%, and earnings per share (EPS) of 24.44 kroners (roughly $3.51), up 18% from the previous year.
The future looks strong for Novo Nordisk, as weight-loss therapy Wegovy and diabetes drug Ozempic are selling so well, the company has had difficulty keeping up with demand.
The one problem I see with Novo Nordisk is that it seems its growth may already be priced into the stock, as it is trading at roughly 41 times earnings and with a forward price-to-earnings ratio of 31 times earnings.
The company has a relatively large pipeline, with 31 programs, which is good because it has seven products that face patent extinction this decade.
Novo Nordisk also has a semi-annual dividend, with one larger dividend and one smaller dividend. It raised the larger one this year by 16% to $1.19, delivering a yield of around 0.80%.
AbbVie will survive, even thrive, after Humira
AbbVie's future has long been tied up with the immunology drug Humira -- the world's top-selling drug, other than COVID-19 vaccines, since 2014. That's a long time at the top of the hill, and now that the drug is facing biosimilar competition in the United States, doom is being forecasted for AbbVie. The therapy was responsible for 36% of the Chicago company's $58 billion in revenue last year.
The latest salvo is that Mark Cuban's pharmaceutical start-up is combining with Coherus Biosciences to produce Yusimry, a Humira biosimilar that costs 85% less than Humira. It will be one of more than 10 Humira biosimilars that are expected to launch this year.
AbbVie stock is down nearly 15% so far this year, thanks in part to an underwhelming first-quarter report. With Humira revenue cratering, what is the company expected to do?
Exactly what AstraZeneca did, beginning in 2012, when three of its blockbuster drugs -- heartburn and acid reflux therapy Nexium, antipsychotic therapy Seroquel, and cholesterol drug Crestor -- all lost patent protection in a four-year period. The trio was responsible for 46% of the British pharmaceutical company's revenue in 2012.
AstraZeneca used its profits to develop its broad pipeline. Over the past 10 years, its share price has increased by 190% while its annual revenue has grown by 72%. In the first quarter, Nexium, which had been the world's top-selling drug with $5.6 billion in sales in 2012, did only $1.28 billion in sales last year, but so what? AstraZeneca had 13 other drugs that did $1 billion or more in sales, led by non-small cell lung cancer therapy Tagrisso, with $5.4 billion in revenue.
AbbVie already has a huge pipeline with 90 programs. The company has two immunology drugs, Skyrizi and Rinvoq, that combined for $6.5 billion in sales last year, and they're relatively new and adding indications every year. AbbVie predicts more than $15 billion in combined sales for the two in 2025. It also had, not counting any of its immunology stars, seven other therapies with $1 billion or more in annual sales. It's easy to see why the company said it expects to return to revenue growth within three years.
In the meantime, AbbVie is trading for only 12 times forward earnings. Investors could swoop in now, and take advantage of an above-average quarterly dividend that yields around 4.2% and has grown for 51 consecutive years, including a 5% bump this year to $1.48. Counting its time as part of Abbott Laboratories, AbbVie is a Dividend King. Since AbbVie's spinoff in 2013, it has increased its dividend by 270%.
Not a simple choice
Novo Nordisk's growth in the next few years is nearly guaranteed, while AbbVie stock is likely to take its lumps.
However, the fundamental strength of AbbVie and its huge pipeline make it a good stock to own now, at its current price, if you see the stock as a long-term buy. The company's strong dividend will reward patient investors in the meantime. However, there is some short-term risk involved, particularly if the company's second-quarter numbers disappoint. Novo Nordisk is likely to see its shares rise, particularly as Ozempic's and Wegovy's sales increase. However, its smaller pipeline and smaller dividend, and future patent expirations -- along with its higher valuation -- make it less of a long-term buy for me.
