Although life expectancy has greatly increased over the past several decades, this doesn't necessarily mean that people are living healthier. Along with longer lives can also come the potential for many more physical and mental ailments - most of these requiring at least some form of pharmaceutical medication to cure, or to at least keep at bay.
This can be very good news for big pharmaceutical - or big pharma - companies that spend millions, or even billions, each and every year testing and applying for their meds to get on pharmacy shelves and physician's prescription pads. When successful, a medication can literally equate to tremendous profits for these drug manufacturers and distributors.
In this article, I will discuss why one of the world's biggest pharmaceutical companies, Eli Lilly (NYSE:LLY), could provide a lot of income and growth for its investors.
With a market cap of over $53 billion, Eli Lilly is a worldwide manufacturer and seller of pharmaceutical products, with a focus on medications that are used to treat depression, diabetes, obsessive-compulsive disorder, bipolar issues, and fibromyalgia, among a variety of others. These products are distributed via independent wholesale distributors as well as directly through pharmacies across the globe.
Throughout the past year, Eli Lilly has experienced over 5% in its sales growth and a net profit margin of more than 17%. But these numbers could increase a great deal if Sola, an Eli Lilly drug that is designed to slow down the progression of Alzheimer's disease, receives acceptance from the FDA. This product could prove to be extremely lucrative for the company, bringing in as much revenue as $7,000 per patient annually in the U.S., and as much as $5,000 per patient per year in Europe.
Although both doctors and analysts have deduced that Eli Lilly needs to conduct additional clinical trials in order to prove Sola's effects, the company's investors are receiving a solid dividend yield in excess of 4.1% while they await the results.
Eli Lilly possesses multiple strengths that I feel can make it a great part to an investor's portfolio - including its solid financial position with reasonable debt levels. Lilly's debt-to-equity ratio stands at just below 0.40, which is well below the industry average as a whole. The company also has an exceptionally high gross profit margin of 86%, equating to a net profit margin of approximately 16.5%. Year-to-date for 2012, Eli Lilly's shares are up over 14%.
How Some of the Other Big Pharma Companies Fare
Over the past few years, one of the other key players in the pharmaceutical industry - Johnson & Johnson (NYSE:JNJ) - has been faced with a number of issues, including some recent product recalls, as well as the resignation of its CEO, that could have a negative effect on shares - although the company has rallied over this year so far. At present, the firm offers its investors a dividend yield of just under 4%, although its shares are only expected to increase about 3.7% over the next year.
Another big pharma company, Pfizer (NYSE:PFE), has not had an impressive year as far as share growth in concerned - which is likely due in large part to lower U.S. generated revenue. In order to help in combating this issue, Pfizer is beefing up its emerging markets unit in areas such as China and Russia, where it currently has seen a 14% increase in its operational revenue growth.
Abbott (NYSE:ABT), with a market cap of over $107 billion, is also a producer of numerous name brand drugs. The company recently received FDA approval for its drug Humira to be used as a treatment for ulcerative colitis. Humira is currently Abbott Labs' biggest selling drug, with sales in the United States alone amounting to more than $1.8 billion in just the first half of 2012. Abbott brought in over $19.2 billion during this same time period, of which worldwide sales of Humira accounted for over $4.2 billion. The company currently pays investors a dividend of $2.04 per share, equating to a dividend yield of roughly 2.9%.
Certainly, when considering pharmaceutical giants, Merck (NYSE:MRK) should not be left out - and for very good reason. This company could also provide investors with both income and growth opportunities over the near and long-term time horizon. Merck places a focus on providing numerous preventive and therapeutic pharmaceutical agents that are used in treating cardiovascular issues, diabetes management, respiratory assistance, and treatment of infectious diseases. In addition, Merck has also made inroads with remedies that may be used in the management and treatment of an issue that is taking the spotlight in both the U.S. and overseas - obesity.
Merck reports a current market cap of approximately $138 billion and a cash flow that is just shy of $13 billion. Investors receive a dividend yield of 3.5%. With sales growth over the past 12 months of roughly 4.5%, Merck has achieved an income growth of over 625% during that same time period. The company's shares are expected to rise, though, by just over 3.5% over the next year.
The Bottom Line
While there are definite positives that surround most of its contemporaries in the pharmaceutical sector, there are also numerous strong points that make Eli Lilly a great growth and income investment.
First, the company has a firm financial position with a reasonable amount of debt levels - especially as compared to some of its competitors in the sector. In addition, Lilly's solid share price performance, along with profit margins that continue to expand and offer a nice return on equity, could quite possibly make this stock a real winner.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.