At the beginning of 2016, AbbVie (NYSE: ABBV) and Eli Lilly (NYSE: LLY) were nearly exactly the same size in terms of market cap. However, AbbVie's stock outperformed Lilly throughout most of the year, making AbbVie the bigger company now.
Continue Reading Below
Size doesn't matter much, though, when it comes to selecting the better stock for the future. The important things are each company's product lineup, pipeline potential, and financial condition. Here's how AbbVie and Eli Lilly compare on these key criteria.
Image source: Getty Images.
The case for AbbVie
It's easy to make an argument in favor of AbbVie based on the current product lineup. After all, AbbVie has the top-selling drug in the world with Humira. The autoimmune disease drug raked in $16 billion last year. And Humira is still growing, with 2016 sales up nearly 15% over the prior year.
Then there's Imbruvica. AbbVie's cancer drug is red hot right now. Sales of Imbruvica soared to $1.8 billion last year, more than double the total from 2015. There's likely more good news to come. AbbVie thinks Imbruvica could eventually reach peak annual sales of $7 billion.
Continue Reading Below
AbbVie's other blockbuster drug, Viekira, isn't doing as well, however. 2016 sales for the hepatitis C virus (HCV) drug dropped more than 7% year over year to $1.5 billion. This doesn't reflect poorly on AbbVie, though, since the dynamics in the HCV market are changing dramatically.
You won't have a hard time making a strong case for AbbVie based on its pipeline, either. The biotech claims a dozen late-stage clinical studies in progress and another 21 mid-stage studies. Several of these pipeline candidates hold the potential to become huge winners for AbbVie.
The company has two experimental drugs poised to follow in Humira's footsteps in the autoimmune disease market with ABT-494 and risankizumab. Veliparib could join Imbruvica as another blockbuster cancer drug in AbbVie's arsenal. Elagolix could generate substantial revenue in two indications if approved -- endometriosis and uterine fibroids.
As for financial shape, AbbVie continues to grow revenue and earnings by double-digit percentages. Although the company has $37 billion in long-term debt, it also has around $8 billion in cash (including cash, cash equivalents, and marketable securities). Its strong cash flow should allow AbbVie to easily service that debt load while continuing to pay out a nice dividend, which currently yields 4.22%.
The case for Eli Lilly
Eli Lilly's current product lineup has its positives and its negatives. On the positive side, the company has several newer drugs for which sales are quickly growing. On the negative side, sales for some of Lilly's older drugs are slipping.
One of the company's brightest rising stars is Trulicity. Sales for the diabetes drug topped $925 million last year, more than tripling the $249 million reported in 2015. Cancer drugCyramza generated revenue of $614 million in 2016, a 60% year-over-year jump.
Lilly also continues to enjoy solid growth for some of its established products. Sales for osteoporosis drug climbed 11% year over year in 2016 to $1.5 billion. Cancer drug Erbitux generated 2016 sales of $687 million, a 42% increase from the prior year.
However, a few of Lilly's biggest moneymakers aren't doing so well. Sales for its top-selling insulin product, Humalog, fell last year. So did sales for Alimta, Cymbalta, and Zyprexa.
The drugmaker's pipeline could help Lilly continue to grow earnings despite lower sales for these older drugs. Lilly awaits regulatory approval for promising autoimmune disease drug baricitinib. The company has 14 late-stage clinical studies in progress (including one for a diagnostic product). Another 19 mid-stage studies are under way.
Several of these studies are for additional indications for currently approved drugs such as Cyramza. However, Lilly also has some new drugs in development, including experimental cancer treatmentabemaciclib and pain drug tanezumab.
Eli Lilly has considerably less debt than AbbVie, with total long-term debt of $8.7 billion. However, it also has less cash on hand, with cash, cash equivalents, and short-term investments totaling $4.2 billion. Lilly's revenue and earnings are growing, but not as much as AbbVie's. The company also pays a dividend, with its yield currently standing at 2.67%.
The choice between these two successful drugmakers seems to be an easy one. Although Lilly has several solid drugs in its current lineup and some strong pipeline candidates, AbbVie is the better buy in my view.
AbbVie is growing more quickly and pays a higher dividend. The biggest knock against the biotech is its dependence on Humira, but rising sales for Imbruvica and other drugs should help reduce its reliance on one drug over time.
At some point in the future, AbbVie will run into major headwinds with competition for Humira. For now, though, AbbVie appears to be a good pick for investors looking for both growth and income.
10 stocks we like better than AbbVie
When investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*
David and Tom just revealed what they believe are the 10 best stocks for investors to buy right now... and AbbVie wasn't one of them! That's right -- they think these 10 stocks are even better buys.
Click here to learn about these picks!
*Stock Advisor returns as of February 6, 2017