Drugmaker AbbVie (ABBV -4.58%) spun off from Abbott Laboratories (ABT 0.63%) at the start of 2013. The growth-oriented pharma business has become a beast, generating more than $58 billion in revenue last year -- far more than Abbott's top line, which totaled just under $44 billion.
But today, AbbVie faces some challenges as its top-selling drug Humira is losing patent protection and its sales have been declining sharply. Abbott, meanwhile, isn't just some stale business. Its diabetes products have been generating impressive growth, and the company is also getting into consumer wearables.
Moving forward, which business is the better option for growth-oriented investors? Let's see.
The case for AbbVie
What's attractive about AbbVie's business is that its operations are diverse, so there are many potential avenues for the business to grow. Immunology, oncology, aesthetics, neuroscience, and eye care are the company's main business segments.
In the third quarter, AbbVie reported net revenue of $13.9 billion, which was down 6% year over year, largely due to declining sales from rheumatoid arthritis drug Humira, which is facing greater competition as it loses patent protection.
But the company's neuroscience business, which includes Botox Therapeutic, grew at a rate of 22%. Plus, in the longer term, immunology drugs Skyrizi and Rinvoq should eventually make up for the decline in revenue due to Humira. Combined, those two drugs could hit a higher peak. While the top line may look underwhelming, it's not as bad of a situation as it looks at first glance for AbbVie.
The company also generates ample free cash flow to help give it the resources it needs to expand its operations. Over the trailing 12 months, AbbVie has reported free cash flow totaling $24.7 billion and it has been putting that cash to work.
Earlier this month, AbbVie announced plans to acquire neuroscience company Cerevel Therapeutics for $8.7 billion. The purchase will help to bolster the company's neuroscience portfolio. And in November, AbbVie announced it was acquiring ImmunoGen for $10.1 billion in another all-cash deal. Through that transaction, AbbVie acquires Elahere, an antibody-drug conjugate that is an approved treatment for platinum-resistant ovarian cancer.
Between these acquisitions, its strong cash flow, and a pipeline that features more than 90 different compounds, indications, or devices, AbbVie should still have plenty of growth opportunities in its future.
The case for Abbott Laboratories
Abbott is also a diverse business, but pharmaceuticals account for a relatively modest size of its operations. Medical devices sales typically account for the bulk of revenue (more than 40%), followed by diagnostics, nutrition, and established pharmaceuticals.
In a sense, Abbott's business is broader as its focus isn't primarily on drug development. And in the third quarter, the company experienced double-digit growth across multiple segments, including nutrition (18.1%), medical devices (14.7%), and established pharmaceuticals (11.1%). The only segment that declined was diagnostics as demand for COVID tests has diminished.
One promising area of growth for Abbott is in diabetes care. The company makes continuous glucose monitoring devices under the FreeStyle Libre brand. And revenue from diabetes care products soared by 26% last quarter. Sales from FreeStyle Libre products rose at a rate of close to 31%, with revenue totaling $1.4 billion.
And there could be more related opportunities. Consumer wearables is a new product category that could stimulate growth for the business. Abbott has a wearable sensor, Lingo, which can track glucose levels and give people personalized health recommendations (via an app) related to sleep, diet, and exercise. The company hopes it will be available in the U.S. market by next year.
Which growth stock is the better buy?
Overall, AbbVie is the better growth stock. Although it's facing some challenges with declining Humira sales, the company's vast resources put it in a great position to weather the storm. It may take some time, but AbbVie's business should get back to generating consistent growth. Humira, unfortunately, will be a drag on its top line for a while.
Abbott's business is solid, and if it were smaller and more focused on just diabetes care and wearables, it could have the edge. But with broad diversification, investors are often left with more modest growth as it can be hard to have so many different and varied business units all doing well at the same time.
