WWe believe Eli Lilly (NYSE: LLY) stock is currently a better choice over Bristol Myers Squibb (NYSE: BMY) stock in the pharmaceutical space, although Eli Lilly is the more expensive of the two. LLY stock trades at around 9x sliding income, compared to 3x BMY stock. Although both companies have seen their revenues increase over the past year or so, with demand rebounding after the pandemic, as well as market share gains for some of Eli Lilly’s drugs, including the drug against Diabetes Trulicity, along with its Covid-19 treatment, help its high-end expansion. For Bristol Myers Squibb, its anticoagulant – Eliquis – continues to gain market share and support overall revenue growth. BMY stock has been weighed down in recent months amid growing concerns over lost sales as its top-selling drug – Revlimid – nears patent expiration in 2022.
As a perspective, BMY stock has lost 7% in the past six months, underperforming the larger indices, with the S & P500 rising 12% over the same period. This compares to a 32% increase for LLY stock, partly helped by hopes for regulatory approval for its Alzheimer’s treatment – Donanemab – which, if approved, will be an opportunity for many. billion dollars for Eli Lilly. However, there is more to the comparison. Let’s go back to take a closer look at the relative valuation of the two companies by looking at historical revenue growth as well as operating margin growth. Our dashboard Bristol Myers Squibb vs. Eli Lilly: industry peers; Which action is a better bet? has more details on this. Parts of the analysis are summarized below.
1. Bristol Myers Squibb’s revenue growth has been stronger
Now Eli Lilly’s turnover has grown at a faster rate of 20% compared to Bristol Myers Squibb’s 15% in the last twelve months, mainly thanks to market share gains for Truliciti. However, if we look at the past three years, Bristol Myers Squibb’s revenue has grown at a 27% CAGR against the 7% CAGR for Eli Lilly. Note that Bristol Myers Squibb’s revenue expansion can also be attributed to its acquisition of Celgene in 2019.
Looking ahead, Bristol Myers Squibb’s revenue is expected to grow 9% in 2021, but the growth rate will likely decline to single-digit next year as Revlimid faces biosimilar competition. However, Bristol Myers Squibb’s other drugs, including Reblozyl and Eliquis, are expected to continue to support revenue growth. Our Bristol Myers Squibb revenue dashboard provides more information on the company’s revenue.
Eli Lilly’s revenue is expected to grow 11% in 2021 and hit low single-digit next year, aided by continued market share gains for drugs, such as Trulicty, Verzenio, Olumiant and Bamlanivima, as well as its Covid-19 treatment. The company recently announced that it will provide an additional 614,000 doses of its Covid-19 cocktail (a combination of bamlanivimab and etesevimab) to the US government for a total of $ 1.3 billion, further boosting its revenue growth business in the coming quarters.
2. Eli Lilly experienced better margin growth
In terms of profitability, contrary to the trend in revenue growth, Eli Lilly’s operating margin of 21.6% in the last twelve months is much better than Bristol Myers Squibb’s -15.6%. . Even if we looked at the average operating margin for the past three years, Eli Lilly’s 20.8% figure is much better than 7.8% for Bristol Myers Squibb. Eli Lilly’s operating margin of 21.6% over the past twelve months compares to 21.8% in 2019, before the pandemic. Bristol Myers Squibb’s current operating margin of -15.6% is lower than Eli Lilly’s, and lower than 22.5% in 2019.
It should be noted that Bristol Myers Squibb’s margins are negatively affected due to a one-time ongoing R&D charge of $ 11.4 billion recorded in the fourth quarter of 2020. This has significantly skewed the reported margins. Considering the operating margin for the nine-month period ending September 2021, it stands at 18.1%. Now we see that Bristol Myers Squibb’s margins were actually better than Eli Lilly’s between 2016 and 2019, hovering around the 22% mark. But, Eli Lilly has seen a gradual increase from 16% in 2016 to 22% in 2019 and 22% currently. We expect the margins of both companies to face headwinds in the near term, given inflationary pressures and supply chain constraints.
The net of everything
Bristol Myers Squibb’s current valuation is apparently more attractive than that of Eli Lilly, with BMY stock trading at around 3x rolling earnings, compared to 9x LLY stock, and Bristol Myers Squibb has also seen better revenue growth through the acquisition of Celgene. However, Eli Lilly has seen better margin expansion, and is more profitable, partly explaining the difference in valuation between the two companies. Even if we looked at financial risk, while Bristol Myers Squibb’s 14% cash as a percentage of assets is greater than 8% for Eli Lilly, Bristol Myers Squibb’s 36% debt as a percentage of equity is much higher. at 7%. for Eli Lilly, which implies that Eli Lilly has a better debt position, while Bristol Myers Squibb has a better cash cushion. This means that LLY stock does not appear to present a higher financial risk than BMY stock.
On the one hand, we have Bristol Myers Squibb, which faces biosimilar competition for its top-selling drug – Revlimid (accounting for 28% of the company’s total sales) – starting next year, and, d On the other hand, we have Eli Lilly, who has a strong trigger in the form of Donanemab. If Donanemab is approved, LLY’s stock may see much higher levels from its current price of $ 262. That said, investors should weigh in on the fact that Donanemab is not yet approved by any regulator. Eli Lilly recently began the process of obtaining regulatory approval for his treatment for Alzheimer’s disease. Although data from its advanced clinical studies will not be available until 2023, the FDA will review the application for expedited approval sometime in 2022.
Overall, with higher margins for Eli Lilly and vast potential for Donanemab, with an estimated sales peak of $ 10 billion (if approved), we believe this valuation gap between BMY and LLY is justified and LLY could continue to outperform BMY stock, move forward.
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