Is Eli Lilly Stock A Better Pick Over Amgen?

LLY: Eli Lilly and Company logo
LLY
Eli Lilly and Company

Given its better prospects, we believe Eli Lilly stock (NYSE: LLY) is a better pick than Amgen stock (NASDAQ: AMGN). Both stocks have been in the limelight lately, given their focus on the lucrative weight-loss treatment market. Eli Lilly trades at a higher valuation multiple of 20.4x revenues vs. 5.9x for Amgen. Also, Eli Lilly has seen a better revenue growth and is more profitable. There is more to the comparison, and in the sections below, we discuss why we believe Eli Lilly is a better pick over Amgen for the next three years. In this note, we compare a slew of factors, such as historical revenue growth, stock returns, and valuation.

Eli Lilly Stock Has Given Far Superior Returns Than Amgen And The S&P500 Index

LLY stock has seen extremely strong gains of 355% from levels of $170 in early January 2021 to around $770 now, while AMGN stock has seen gains of only 35% from levels of $230 to around $315 over the same period. This compares with an increase of about 40% for the S&P 500 over this roughly three-year period.

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Admirably, LLY stock has outperformed the broader market in each of the last three years. Returns for the stock were 64% in 2021, 32% in 2022, and 59% in 2023. However, the increase in AMGN stock has been far from consistent. Returns for the stock were -2% in 2021, 17% in 2022, and 10% in 2023. In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 24% in 2023.

In fact, consistently beating the S&P 500 — in good times and bad — has been difficult over recent years for individual stocks; for other heavyweights in the Health Care sector including UNH, JNJ, and MRK, and even for the megacap stars GOOG, TSLA, and MSFT. In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride, as evident in HQ Portfolio performance metrics.

Given the current uncertain macroeconomic environment with high oil prices and elevated interest rates, could LLY and AMGN see a strong jump? While we think both stocks could see higher levels in the next three years, Eli Lilly will likely fare better.

Eli Lilly’s Revenue Growth And Prospects Are Better

Eli Lilly’s revenue has risen from $22.3 billion in 2019 to $34.1 billion in 2023, while Amgen’s revenue has risen from $23.4 billion to $28.2 billion over the same period.

Amgen’s expansion of some of its drugs, including Prolia, Otezla, Tezspire, and Repatha, is driving its revenue growth, while some of the older drugs, such as Enbrel and Neulasta, are seeing softer demand. Amgen is also benefiting from its last year’s acquisition of Horizon Therapeutics. Amgen launched a biosimilar — Amjevita — for AbbVie’s Humira, which is also expected to bolster its top-line growth.

For Amgen, the big game changer could be its obesity treatment – MariTide. The company decided to scrap its obesity pill but move forward with an injection, and Amgen’s management seems satisfied with the results so far.  The company is planning for a late-stage clinical trial of its weight-loss injection. Amgen’s injection could stand out despite rising competition in the weight-loss treatment market. For example, the injection could help patients stop gaining weight even after they discontinue the treatment. Also, the frequency of dosage is lower than the regular pills. [1] Note that the obesity drugs market is expected to rise a whopping 16 times to over $100 billion by 2030, and it will largely be dominated by Eli Lilly and Novo Nordisk. If Amgen succeeds with MariTide, it could also garner over $5 billion in peak sales.

Eli Lilly’s revenue growth can be attributed to market share gains for some of its drugs, including Mounjaro, Verzenio, and Zyprexa. Eli Lilly’s diabetes drug – Mounjaro – was approved by the U.S. FDA in 2022, and it is expected to garner nearly $33 billion in annual sales by 2029. [2] Eli Lilly’s obesity drug – Zepbound – secured its U.S. FDA approval in November last year, and it is estimated to rake in over $16 billion in annual sales by 2029.

Eli Lilly’s pipeline is expansive, with drugs under clinical trials in different therapeutic areas. The company’s Alzheimer’s treatment — Donanemab – has faced a delay in regulatory approval, but the company remains positive about the outcome. [3]  The peak sales of Donanemab are pegged at $10 billion.

Eli Lilly Is More Profitable And Has A Better Debt Position

Eli Lilly’s operating income increased by 55% from $4.9 billion in 2019 to $7.5 billion over the last twelve months. Amgen’s operating income has declined 28% from $10.4 billion to $7.5 billion over the same period. Eli Lilly’s operating margin of 32.9% over the last twelve months fares better than 23.6% for Amgen.

Looking at financial risk, both companies are comparable. Amgen’s 38.5% debt as a percentage of equity is much higher than just 3.4% for Eli Lilly. However, Amgen’s 11.3% cash as a percentage of assets is higher than 4.6% for Eli Lilly.

The Net of It All

We see that Eli Lilly has demonstrated better revenue growth, is more profitable, and has a better debt position. On the other hand, Amgen is available at a comparatively lower valuation, and it has a better cash cushion. Now, looking at prospects, we still think Eli Lilly is a better pick, given its more robust and diversified pipeline. For Amgen, MariTide is now one of the most anticipated drugs in its pipeline. Amgen is also developing biosimilars for some blockbuster cancer drugs, including Keytruda and Opdivo, which could help the company garner strong sales growth, going forward.

For Amgen, the average of analysts’ price estimate is placed around $315, aligning with its current market price. That said, we believe Amgen will also see an upward revision in valuation multiple if it succeeds with late-stage clinical trials for MariTide. Despite its higher valuation, we believe LLY is a better pick over AMGN. Moreover, we think investors shouldn’t read much into the high valuation multiple of over 20x revenues for Eli Lilly, given that the company’s valuation is largely dependent on future pipeline potential rather than its current sales and earnings. Despite its large move, the $855 average of analysts’ price estimates is over 10% above its current market price of around $770.

While LLY stock may fare better than AMGN, it is helpful to see how Eli Lilly peers fare on metrics that matter. You will find other valuable comparisons for companies across industries at Peer Comparisons.

Returns May 2024
MTD [1]
2024
YTD [1]
2017-24
Total [2]
 LLY Return -1% 32% 949%
 AMGN Return 14% 9% 114%
 S&P 500 Return 4% 9% 133%
 Trefis Reinforced Value Portfolio 4% 4% 636%

[1] Returns as of 5/10/2024
[2] Cumulative total returns since the end of 2016

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Notes:
  1. Amgen scraps experimental weight loss pill, moves forward with injection, Annika Kim Constantino, CNBC, May 2, 2024 []
  2. Lilly weight-loss drug Zepbound new US prescriptions surpass Wegovy for first time, Patrick Wingrove, Reuters, March 15, 2024 []
  3. FDA delays Alzheimer’s drug for further review in surprise move, Daniel Gilbert and David Ovalle, The Washington Post, March 8, 2024 []